by Michael J. Shapiro | August 25, 2017
Even amid speculation that current U.S. hotel performance could be indicative of an upcoming downturn, analyst CBRE Hotels is forecasting continued, if slower, growth in its latest report. According to the September 2017 edition of "Hotel Horizons," year-over-year increases will occur from 2017 to 2018 in all major metrics: occupancy, average daily rate, revenue per available room, total operating revenue and gross operating profits.
"Based on our analysis of the economic and operating environments, we believe that U.S. hotels will once again achieve record occupancy levels and continued growth in profits during the upcoming year," said R. Mark Woodworth, senior managing director of CBRE Hotels' Americas Research.
The forecast calls for an 0.1 percent rise in occupancy, coupled with a 2.3 percent jump in ADR for 2018, leading to a 2.4 percent RevPAR increase. "The limited growth rates may be disappointing or even troubling for some industry participants," acknowledged Woodworth. "However, 2018 will mark the ninth consecutive year of rising occupancy, something we have not seen since the 1990s. While the slow growth in occupancy does indicate we are at the top of the business cycle, all factors indicate that we are in the midst of a record-breaking, sustained period of prosperity for U.S. hotels." If the forecast holds true, 2018 will also mark the ninth consecutive year of growth for RevPAR, total operating revenue and gross operating profits.
CBRE is projecting a 2 percent increase in room supply for 2018, which exceeds the 1.8 percent long-term average reported by lodging-data provider STR. That doesn't necessarily indicate doom, however, for the industry. "Fortunately, as has been demonstrated for several years now, the economic factors that matter most for hotel-demand growth exceeded the changes in supply," said John B. Corgel, Ph.D., professor of real estate at the Cornell University School of Hotel Administration and senior advisor to CBRE Hotels' Americas Research. "Looking forward, employment levels and income gains are expected and remain attractive. These movements will result in growing levels of demand and occupancy to counterbalance supply growth."
That supply growth will have a more significant effect in the major markets than across the nation as a whole, according to CBRE. Nearly 90 percent of the new guest rooms coming online in 2018 will be in the top 60 markets defined by "Hotel Horizons." Fifty of those markets are expected to see a decline in occupancy next year, despite the national average occupancy inching up very slightly. That should be kept in perspective, however: 52 of the 60 markets still will see occupancy that exceeds their long-term average. An ADR increase that exceeds the projected 2.2 percent inflation rate is projected for 49 of the markets. "Real ADR growth in the face of declining occupancy speaks to the strength of most U.S. lodging markets," Corgel noted.
The CBRE forecast calls for 2 percent year-over-year increases in both supply and demand for 2018. As noted, occupancy is projected to rise by 0.1 percent, ADR by 2.3 percent and RevPAR by 2.4 percent. Total revenue is expected to increase by 2.3 percent, operating expenses by 2.6 percent and gross operating profits by 1.8 percent.