U.S. hotel performance growth is better than expected

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The performance of United States hotels doesn’t seem to be slowing down—in fact, it’s beating original forecasts. That’s why a strong first quarter for U.S. hotels is causing some analysts to revise their original forecasts.

CBRE Hotels’ Americas Research took a look at first-quarter hotel performance and has since raised its 2018 outlook for U.S. hotels. According to STR data, U.S. hotels saw a 3.5-percent increase in revenue per available room during the quarter, which exceeded the 2.5-percent increase CBRE had expected. Thus, CBRE is now forecasting RevPAR for U.S. hotels to increase 2.8 percent this year. That’s a 0.3-percentage-point improvement over the 2.5-percent figure CBRE predicted in March.

Related Story: PwC: Growth still on the horizon for U.S. hotels through 2019

“We continue to be impressed by the ability of the U.S. economy to support demand growth for accommodations away from home,” R. Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research, said in a recent news release.

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He said the U.S. economy helped hotel demand grow 3 percent during the first quarter, which is a full 1.1 percentage point greater than was expected and marks 33 consecutive quarters of demand growth.

Due to the increase seen during the quarter, CBRE has updated its annual forecast for demand growth. The firm has increased its forecast from 1.8 percent growth to 2.1 percent growth for the year. With U.S. hotel supply predicted to grow 2 percent, CBRE has now flipped its occupancy projection from a 0.1-percent decline to an increase of 0.1 percent. 

“Looking toward 2019, we foresee another year of occupancy growth. This will mark 10 consecutive years of increases in occupancy and five consecutive years of record occupancy levels,” Woodworth said.

Likewise, STR and Tourism Economics have recognized the record-breaking streak U.S. hotels are on and have updated their joint forecasts through 2019.

Amanda Hite, STR’s president and CEO, said in a news release that industry fundamentals continue to record levels that are supported by strong demand from business and leisure travelers alike.

“Solid economic indicators and a room construction total that represents just 3.6 percent of existing supply certainly help marketplace conditions as well,” she said.

STR and Tourism Economics predict the following for 2018 and 2019:

 

 

Occupancy

ADR

RevPAR

2018

66.2% (+0.4%)

$129.74 (+2.5%)

$85.89 (+2.9%)

2019

66.2% (+0.1%)

$132.74 (+2.3%)

$87.93 (+2.4%)

Source: STR and Tourism Economics

 

Effects of Hurricanes

Both firms noted the demand lifts from hurricanes Harvey and Irma, which hit Texas and Florida during the summer of 2017. The events affected year-over-year changes in U.S. hotel performance and were factored into the updated forecasts.

“As a result of the hurricanes, we saw a 3.7-percent increase in demand during the fourth quarter of 2017. This was generated by displaced citizens in need of shelter, as well as rescue workers, remediation crews and insurance adjusters in need of lodging,” said Jack Corgel, professor of real estate at the Cornell University School of Hotel Administration and senior advisor to CBRE Hotels’ Americas Research.

“Barring another unforeseen significant event, we do not believe this level of demand growth can be sustained in the fourth quarter of 2018. That, combined with the high occupancy levels traditionally achieved during the summer months, puts a seasonal cap on the potential for demand growth during the last three quarters of the year,” he said.

Related Story: Why it’s a tough time to operate a hotel in the U.S.

The effects of the 2017 hurricanes can also be found in the 2018 forecasted performance of individual markets, according to CBRE. For 2018, the firm predicts declines in occupancy and ADR for hotels in the Houston market. Additionally, four Florida markets—West Palm Beach, Miami, Orlando and Jacksonville—are expected to achieve the greatest annual increases in ADR among the 60 markets CBRE tracks.

“In general, the supply of available hotel rooms in the Houston market was less impacted by Hurricane Harvey compared to Florida where Hurricane Irma caused a number of properties to remain closed through the first quarter of 2018,” Woodworth said, adding that’s why the occupancy and ADR growth gained in 2017 won’t hold true in 2018 for Houston.

“Conversely, the lingering closure of hotels in Florida has helped sustain the hurricane-related occupancy and ADR increases into the 2018 first quarter busy season,” he said. “This will have a positive impact on their annual performance.”

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