Monthly Archives: October 2014

Highlights:
• August demand growth (+4.8%) was higher than July’s (+4.7%).
• RevPAR increased 9.4%, the second-highest growth rate this year.

From an October 6, 2014 article By Jan Freitag in Hotel News Now (jan@str.com)
The United States hotel industry is in full swing. Here are five things to know about August data from STR, parent company of Hotel News Now.

1. August demand growth higher than July’s

Year-over-year demand growth in August of 4.8% was the second highest this year (after May’s +5.7%) and the second strongest since mid-2011.

What I think is even more remarkable is that the August year-over-year growth was higher than July’s (+4.7%). I keep saying that eventually the growth rates of demand have to slow down because the absolute values are now so high (110 million rooms sold, 5 million more than last August), but turns out I am wrong. (So far. Eventually I will be right.)

The absolute number of roomnights sold during August was less than July, however, prompted in part by a decline in group meeting attendance. In August, we sold 2.8 million roomnights fewer than in July.

2. August saw second-highest RevPAR growth this year

Revenue per available room increased 9.4%, also the second-highest year-over-year growth rate this year (behind May’s +10%) and the second highest since September 2011 (+10%).

RevPAR was driven by average-daily-rate growth (+5.4%) and occupancy growth (+3.8%). Just as we observed for the past 46 months, RevPAR growth is disproportionately driven by ADR, which in turn will drive profit growth.

3. ADR growth highest reported in this recovery cycle

In addition to the highest-reported year-over-year ADR growth (+5.4%) reported in this recovery, it is also the highest since January 2008 (+6.3%) prior to the downturn.

Is this a sign that our clients are finally taking the absolute occupancy levels of more than 65% during the last six months as a sign that the recovery is officially here? Are they finally pricing their product according to scarcity? Or is this just a blip and hoteliers will retreat back to sub-4% ADR growth this fall?

Time will tell. It’s remarkable that in the prior four years, between 2009 and 2013, ADR always declined from July to August—not by much, but it did. This year, the August ADR is actually higher than July (+$0.62) which last happened at the peak of the market, in 2008 and 2007—and prior to that in the mid and late ‘90s. So, I take this as another positive indicator of pricing power.

4. Supply increased 1%

After a remarkable 44-month long string of supply growth rates below 1% in August, we finally reported a supply increase of 1%.

Well, OK, the actual number was +0.95256356%, but you can see that the “no-supply Kool-Aid” that has fueled this party is slowly running out. Between August this and last year, our census team tracked openings of 433 hotels with 46,800 rooms, for a total annual supply increase of 1.5 million roomnights. As long as we keep selling more roomnights than that, all is well. And it stands to reason that for the foreseeable future all will be well.

(Clipped to blog length by Dave Hogg)

Article (shortened) by Carter Wilson, Director, STR Analytics, September 29, 2014

BROOMFIELD, Colorado—Demand in the United States hotel industry is booming while supply growth remains low. As a result, national hotel occupancy levels are near all-time highs, which is impressive considering there are more hotel rooms in the U.S. than ever.

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To put it in perspective, HNN’s sister company STR Analytics looked at the trailing three-month occupancy levels dating back to 1990. Of the 296 possible three-month periods, only 29 times has a three-month period exceeded a 70% occupancy level, or about 10% of the time.

Only four times have these occupancy levels matched or exceeded where the U.S. hotel industry sits as of August 2014. The current running three-month occupancy is the highest it’s been since the summer of 1996, with the all-time peak occurring in the summer of 1995. Clearly, some three-month periods occur when national occupancy levels are naturally softer (winter), so to smooth this trend out we looked only at the three-month periods ending August since 1990.

Here it’s clear to see the strength of the mid-90s, where occupancy records were broken. The cycles dip in 2001 and again much more dramatically in 2009, but the slope of recovery is steeper in the last few years than ever before.

Occupancy is the last major benchmark yet to achieve record levels, and usually it’s a race an impending onslaught of new supply. However, in today’s climate, new supply is subdued compared to what was on the books in 1995 and 1996, so it’s quite possible the previous occupancy records will be broken.

Are there any other similarities between today’s hotel market and in the summer of 1995, the peak of recorded three-month occupancy?

On a running three-month basis, occupancy levels are nearly the same, though clearly rates are much higher in 2014. What’s interesting is that rate growth is stronger today when looking on a three-month basis, even considering inflation was nearly 100 basis points higher back in 1995. Taking that into account, nominal average-daily-rate growth for this period is double what it was for the same three-month period in 1995.

A key difference here is supply growth; it was nearly double back in 1995 to what it is today. The lack of supply growth has allowed the U.S. to sell out hotels, though that is slowly changing as more hotel projects enter the pipeline every day.

Unemployment was 500 basis points lower back in 1995 with gross-domestic-product growth much stronger, which makes the current uptick in today’s ADR growth even more impressive. Mortgage rates were much higher back then (almost double), which directly affects disposable income. This could be one factor in explaining the softer rate growth in 1995.

One potential hindrance to greater ADR growth in today’s market? Look to the Internet. The stats above on the number of websites in existence is staggering, and consider back in 1995 the distribution channels for a hotel were extremely limited (mostly you had to call to make a reservation). Consumers didn’t have the ease and ability to research hotel rates that they have now, which puts pressure on a hotelier’s ability to increase those rates.

The mere existence of the Internet has allowed hoteliers to reach a limitless audience, but it also has trained consumers on how to get the best prices available at all times. It also allowed hotels a fast and easy way to slash rates in a downturn, which we have learned is much easier than building rates back up.

(Remainder of article snipped to blog-size it – Dave Hogg)