The occupancy rate in the United States is the highest it has been in nearly 30 years, and that means good news for average-daily-rate and revenue-per-available-room growth, according to a recent report from Marcus & Millichap.
First-quarter occupancy increased to 61.1 percent, which helped boost annual occupancy during the past 12 months to 66.1 percent, according to Marcus & Millichap’s second-quarter National Hospitality Report. ADR was up 2.1 percent to $127.36 during the past 12 months, while RevPAR rose 2.9 percent to $84.17.
But what’s driving the continued growth? After all, several analysts recently upped their forecasts for the U.S. hotel industry after a better-than-expected first quarter. According to the Marcus & Millichap research, healthy employment growth and increased consumer spending have been a boon to the industry. The trend is expected to continue, especially as the effects of the new tax laws stimulate more economic growth, according to the report.
However, as always, the trend applies on a case-by-case basis, as researchers note that markets with large development pipelines are likely to face supply pressure that will reduce occupancy and slow RevPAR growth.
Following are five more important findings from the report.
1. Deals are Hot in Smaller Markets
Occupancy and revenue growth are paving the way for investors to take note of smaller markets. Transaction pace rose about 2 percent in the U.S. as demand picked up for hotels in these areas. Private investors comprised more than half of sales volume, with buyers in the $1-million to $10-million price range particularly active.
2. Limited Service Continues to be a Favorite
About 200,000 limited-service rooms in 993 hotels were constructed during the year ending in March. Moving forward, more than 186,000 rooms are in the works and 221,000 rooms are in the final planning stages and should break ground over the next 12 months.
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3. New York still has the Largest Pipeline
Nearly 12,000 rooms are under development in New York, making it the market with the largest construction pipeline among the major metropolitan areas. More than 5,600 rooms were completed during the first quarter, with upper-upscale and unaffiliated hotels leading supply growth.
4. Economy, Independent Hotels Lead Performance Gains
Economy and independent hotels are showing they are contenders when it comes to performance. ADR for economy hotels grew 2.9 percent to $62.59 and helped to grow RevPAR 3.9 percent to $36.66 year over year. Meanwhile, independent hotels saw ADR growth of 2.7 percent to $126.77 and a RevPAR increase of 4 percent to $79.95 over the same time period.
Additionally, independent hotels led the charge in occupancy gains, with a year-over-year increase to 62.9 percent.
5. Resort Hotels See Largest Revenue Growth
Among location types, resort hotels registered the largest revenue growth. ADR growth of 3.3 percent in combination with rising occupancy led to a 5.3-percent RevPAR increase to $122.91. Interstate hotels followed with a 4.1-percent increase to $49.03 in RevPAR.