Historic Occupancy Drives up Room Rates

Fairfield Inn & Suites, 651 W Areba Ave., Hershey, PA 17033

(The following is content from a 2-5-2016 article by Elliott Mest in Hotel Management. It is, I believe, a good summary of the 2016 outlook for the U.S. hotel market – Dave Hogg.)

Hospitality remains in high spirits as occupancy continues to hit record numbers, but recent reflections from industry experts show watchful eyes on the eventual cycle peak and possible downturn. And as the industry continues to produce record-breaking occupancy numbers, a report released by PwC US shows that average daily rate is now taking center stage.

The forecast from PwC expects revenue per available room growth in 2016 to increase 5.5 percent, despite growing economic concerns from the U.S. lodging sector’s weak Q4 2015. Hotels have struggled to increase ADRs despite rising occupancy, but raising rates is expected to be easier this year thanks to increased corporate and leisure demand, which are at their highest levels since 1981.

Lodging demand is expected to remain strong in 2016, because the country’s employment fundamentals and wage increases are expected to increase travel. Additionally, group demand is expected to continue to rise, and room supply is expected to increase 1.9 percent. Occupancy is expected to increase from 65.5 percent to 65.7 percent, the highest since 1981 and leagues ahead of 2009’s low of 54.6 percent. Operators are expected to have renewed confidence to begin increasing rates, culminating in a 5.5-percent rise.

“Recent turmoil in the financial markets and the lower-than-expected economic growth in the fourth quarter have raised some concerns,” Scott D. Berman, principal and U.S. industry leader, hospitality & leisure, PwC, said in a statement. “However, industry fundamentals are solid heading farther into 2016, including the pace of corporate group travel. We expect peak occupancy levels in select markets should give hotel operators the confidence to meaningfully increase average rates, although the strength of the US Dollar may have an impact, particularly on gateway markets.”

These numbers are comforting, considering a report from PwC in November 2015 showed ADR’s slow growth in the face of peak occupancy. At the time, PwC expected 2016 to see RevPAR growth of 5.7 percent, a number the company revised this week and only lowered 0.2 percent.

In some markets, high levels of construction are serving as a counterweight to the industry’s notable occupancy, but the election season is expected to reveal a high water mark for rate potential in key U.S. cities. This week’s Iowa caucus saw rates in Des Moines, Iowa, reach as much as $900 per night, with many hotels believing they hadn’t charged enough.

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