Record US results set stage for more growth
Hospitality and tourism industries continue to thrive posting all-time high performance within a twelve month period while setting the stage for more growth during the next two years. With accelerating occupancy, groups on the rebound, and revenue rolling, the hotel industry is experiencing some of the best principles of a lifetime. Hotel News Now reports the 2015 forecast.
The U.S. hotel industry is posting all-time high performance benchmarks, setting the stage for further growth, said STR’s Amanda Hite at the NYU Investment Conference.
Source: STR and Tourism Economics
NEW YORK CITY—Hoteliers in the United States should expect further growth as performance continues its historic upswing.
The industry broke more records during April, according to Amanda Hite, president and COO of STR, during the “Statistically speaking” session at the 37th annual NYU International Hospitality Industry Investment Conference. (STR is the parent company of Hotel News Now.)
Among the all-time highs posted in the 12 months ending in April were:
- Occupancy: 65%
- Average daily rate: $117
- Revenue per available room: $76
That’s setting the stage for more growth during the next two years, Hite said.
STR’s forecast for 2015 calls for RevPAR growth of 6.6%, driven primarily by a 5.2% increase in ADR. RevPAR growth will decelerate slightly during 2016 at a 5.8% growth rate, she added.
Hite, along with co-presenter Steve Rushmore Jr., president and CEO of HVS, addressed a number of other topics during the 30-minute presentation.
Supply’s upward march
“As compared to 2007, we actually have 158 million more roomnights to sell today than we did in 2007,” Hite said.
Annualized supply growth was 0.9% as of April, which is below the industry’s 20-year compound annual growth rate of 1.7%.
Pushing supply growth is an evening of the costs to build versus buying. In the upscale, upper-midscale and midscale segments, it is now cheaper to build a new hotel than to acquire an existing one, Hite explained.
That’s particularly true for select-service brands, which are fueling growth in the upscale and upper-midscale segments. Combined, those two segments account for 67% of all rooms under construction, she said.
New York City, where 13,209 rooms are under construction, has the largest percentage of rooms coming online as a percentage of existing supply (12%). Houston (8%) and Miami (7%) follow.
While supply continues to creep up, the pace of hotel closings is slowing, Hite said.
On average the U.S. hotel industry closes approximately 30,000 rooms each year. That peaked at 64,900 during 2005 and has since slowed to 23,800 rooms in 2014.
As of April 2015, 6,600 rooms had closed—the majority of which are in the economy segment, Hite said.
Occupancy continues to accelerate
April 2015 saw the highest annualized occupancy in the U.S. hotel industry’s history, Hite reiterated.
During the 12 months ending in April, demand was up 4.5%, which is above the industry’s 20-year compound annual growth rate of 1.6%.
“We continue to experience some of the best fundamentals that we’ve had with demand growth well outpacing the supply growth,” Hite said.
“We’re in a great part of the economic hotel cycle. … There hasn’t been a lot of new supply coming into the various markets,” Rushmore said.
Absolute occupancy levels are particularly strong in the high-end of the market. The luxury segment, for instance, finished the first four months of the year at 75.1%. The upper-upscale and upscale segments were close behind at 72.9% and 72.6%, respectively.
“We’re happy to see the group demand coming back. … We think this bodes very well for hotels across the country for the remainder of the year,” Hite said.
Demand within that customer segment increased 3.4% April year to date. Transient demand, by comparison, was up 2.3%.
Group demand is showing even stronger gains on an annualized basis. After reporting negative growth as recently as 2014, the segment is up more than 5% during the past 12 months. ADR for group business has grown steadily at nearly 4% during the past few years, according to STR data.
Group ADR varies widely by market, Hite said. In San Francisco, for instance, ADR for the segment is up 12.9% April year to date. On the other end of the top-25 spectrum in New York, group ADR is down 4.8%.
Revenue is rolling
The U.S. hotel industry has collected more than $136 billion in room revenue during the 12-month period ending in April, Hite said. That’s up $44 billion since the trough in 2010.
Total revenue, which includes room revenue among other departments, was up 7% in 2014 compared to 2013, she added.
“You see positive increases across the board,” Hite said.
House profit is increasing as well. Total revenue during 2014 was $176.7 billion, a $13.8 billion increase from 2013. House profit, meanwhile, was $65.8 billion during 2014, up $7.4 billion from the prior year.