U.S. hotel revenue grows while deal volume falls

Photo credit: Pixabay/Gerd Altmann

Revenue for hotels in the United States is trending upward, according to a recent report from Ten-X Commercial. According to its "Quarterly Hotel Monitor," hotel revenue in the first quarter of the year was up 3.5 percent year-over-year to $13.1 trillion.

Although revenue grew, it did so at a slower pace than in previous quarters. One reason is the lack of occupancy improvement in recent quarters, researchers noted. Occupancy has hovered near current levels for the past six quarters while room supply has continued to grow. Room supply increased 2 percent from the previous year, staying at its highest level for the cycle. What results is revenue growth driven by expanded room rates.

However, demand for hotel rooms remains steady, the report noted. That’s despite a government shutdown during the first quarter. A strong labor market also comes into play here, according to the research. Because wages are aplenty, consumer spending is on the rise. Some of those funds are funneling into hotels and motels, with consumer spend here at a cycle high at about 3.2 percent higher than a year ago.

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Of course, there’s a double-edged sword here. While rising wages are great for travelers, they drag on operating costs at hotels. Researchers note that as consumer spending and demand continue to grow, labor costs and turnover continue to increase.

Falling Deals

On the contrary to rising revenue for U.S. hotels, the report noted that deal volume fell to $6.7 billion in the first quarter. That represents a decline of 56 percent from the previous quarter and down 36 percent from the first quarter of 2018. The decline was most stark in the full-service sector, where data showed that deal volume measured $3.7 billion in the quarter, a decrease of 68 percent from the quarter before and 39 percent from a year ago.

Researchers noted that the data might look dire, but it’s important to point out that deal volume in 2018 was temporarily bolstered by a rush of transactions early in the year that were held off in order to take advantage of tax-code changes as well as several mergers that occurred throughout the year that boosted volume on a one-off basis.

Despite the deal volume drop, the report showed that pricing trends held steady. Price per key during the first quarter of 2019 rose 13 percent from the fourth quarter of 2018 and 14 percent from a year ago to $165,000. Here, gains were strongest in the full-service segment.

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Meanwhile, cap rates for U.S. hotels fell in the first quarter, mirroring decreases seen in interest rates that started off the year, according to the data. Cap rates for hotels measured 7.5 percent in the first quarter, which was a 20-basis-point drop from the previous quarter and a 50-basis-point decline from the first quarter of 2018.

The report also pointed out the top five buy and sell markets in the U.S. during the first quarter of 2019. The top buy markets were: Miami; Palm Beach, Fla.; Orlando; Tampa, Fla.; and Atlanta. The top five sell markets were: Kansas City; Minneapolis; Long Island, N.Y.; Milwaukee; and Detroit.