Hotel industry retains optimism despite RevPAR stumble

Ryan Lynch, business development associate and industry partner at STR, shared industry performance data at HX: The Hotel Experience.

NEW YORK Hoteliers on the lookout for the end of the current business cycle received a bit of a scare in September as revenue per available room across the industry dropped for the first time in 102 consecutive months. Is this a sign of things to come? Upon closer inspection, not exactly.

At this year's HX: The Hotel Experience conference in New York City, Ryan Lynch, business development associate and industry partner at STR, dug into the hotel industry's recent metrics and what led to its short-term RevPAR stumble in September. Overall, RevPAR in September fell 0.3 percent despite record growth in room supply (up 2 percent), occupancy (up 0.5 percent) and average daily rates (up 2.5 percent). While room demand was up 2.5 percent year over year, it also fell 0.1 percent in September, so what was the cause? 

According to Lynch, it has less to do with the industry's performance this year than it does with an ongoing correction as a result of last year's hurricanes. Even more specifically, excluding one market, Houston, the hotel industry continues to produce favorable metrics across the board.

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"If you remove one U.S. market from the study, we see 4 percent RevPAR growth across the country," Lynch said. "Houston alone had a 36.2 percent RevPAR decline. We're still at a 35-year high with room supply, so as long as demand outpaces supply we will still see more revenue growth."

It was clear that last year's hurricanes were set to deliver a lasting effect on Texas and Florida, with Houston alone incurring $125 billion damage from the storms. Since then the city has been host to significant recovery efforts, with its occupancy 4 points higher year over year in August. However, recent RevPAR numbers show the recovery is anticipated to be a long-term effort.

Lynch did note that this was not an indicator of the start of the downturn, but more of a blip on the radar.

Read More: Houston hotels regain strength in year since Hurricane Harvey

Even excluding Houston, the overall favorable metrics don't translate into complete good news for the industry. While occupancy continues to reach record highs, averaging 72-74 percent across the industry, Lynch said ADR has failed to match it.

"Occupancy jumped 5 percent in the current cycle, but ADR never broke that 3 percent threshold," Lynch said. "We say it's due to the prevalence of information today. Whereas travelers used to research three or four hotels, today you can pull up hundreds of room rates at a time. This forces hotels to be a lot more honest and competitive with rates... this is also what gives us confidence to say [the industry has] more opportunities for growth, because we aren't as rate dependent as we were before."

The curve balls don't end with Houston, however. Hurricane Florence battered the Carolinas earlier this year, and a correction is likely to take place in 2019 as a result. The good news, however, is that the industry's metrics remain strong, by and large. Group hotel demand is up 2.2 percent in Q3 2018, versus a 1.5 percent loss in Q3 2017. Transient hotel ADR also is up, 2.5 percent over the same period last year, and the top five U.S. markets each recorded ADR gains above 4 percent year to date 2018, with Miami achieving a 7.4 percent gain overall.

These numbers also bode well for 2019, with Lynch anticipating supply to grow 1.9 percent next year atop a 2.1 percent demand increase and a 0.2 percent occupancy gain. He also expects ADR to increase 2.4 percent and RevPAR to grow 2.6 percent overall. If anything, Lynch said the industry's already high occupancy may be its greatest limiting factor going into next year.

"We are running on full capacity for occupancy, and once you hit that you have limited options for growth," he said. "When we run this full for this long it's hard to keep going at that rate."

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