Moody’s: U.S. hotel industry outlook downgraded

Photo credit: Pexels/Luan Oosthuizen

A newly released report from Moody’s Investor Services cuts the company's outlook on the United States lodging sector to stable from its previous positive, reflecting decreased growth in revenue per available room.

Additionally, the company reported that weakening occupancy growth is weighing on hotels. Despite modest supply growth in the U.S., Moody’s noted demand growth has slowed to 2.1 percent during the first eight months of 2019, compared to 2.9-percent growth in the previous year. As a result, occupancy and average-daily-rate growth have slowed over the same period. That has resulted in RevPAR growth of 1.2 percent in comparison to the metric’s 3.5-percent increase experienced in the prior year.

Moody’s expects this trend will continue into 2020. The firm expects demand growth will continue to slow into next year while supply growth will remain steady. This will lead to either flat occupancy or a decline. Because of the record high occupancy the industry has seen in the past few years, researchers expect hotel companies will continue to try and maintain some ADR growth. However, the growth will be slight at about 1.25 percent. All of this will result in RevPAR growth of about 1 percent, according to Moody’s. That’s a level that hasn't been reported since early 2018.

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Related Story: CBRE: U.S. hotel performance to slow, but recession not on horizon

That said, researchers reported the lodging sector will rely more heavily on unit growth by way of new-build hotel openings and conversions as RevPAR continues to slow over the next 12 months. Case in point: Moody’s noted Hyatt Hotels Corp. expects adjusted earnings before interest, taxes, depreciation and amortization growth of 4 percent to 9 percent over the next three years driven by about 3 percent to 4 percent coming from net rooms growth and 1 percent to 5 percent from RevPAR growth. Hyatt, Marriott International and Hilton each forecast new room growth of more than 5 percent in 2019, according to Moody’s.

What’s Causing the Slowdown

Report authors noted the overall U.S. economy contributed to the firm’s revised outlook. The forecast reflects Moody’s Macroeconomic Board’s expectation for U.S. gross-domestic-product growth to slow to 1.7 percent next year from an anticipated 2.3 percent this year. Thus, the outlook incorporates an expectation for deteriorating global growth and an escalation of trade tensions. (Note: The U.S. and China are expected to resume trade talks on October 10.)

Among other pressures, inbound travel from China to the U.S. declined 3.7 percent for the first seven months of 2019 versus the same period in 2018, according to the National Travel & Tourism Office. China accounts for the fifth-highest number of visitors to the states, according to Moody’s.

Related Story: CBRE: Inbound capital flow to U.S. falls nearly 50%

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