by Michael J. Shapiro | August 24, 2017
U.S. hotels reported a 0.5 percent decline in occupancy for July, according to lodging-data provider STR, the third year-over-year decline this year. The dip was due to a room supply increase of 1.9 percent and weaker-than-expected demand growth of 1.4 percent. Revenue per available room inched up by 0.8 percent -- not much, but enough to make it the 89th consecutive month of RevPAR growth.
While the percentages aren't exactly robust, room demand is still strong in absolute terms, noted Jan Freitag, STR's senior vice president of lodging insights. July's total of 118 million room-nights sold represented the largest room demand in any month ever recorded. But the month was also the first with subpar performance where supply basically negated the demand increase, Freitag said. "Keep an eye on August as an indicator of how the industry will fare this year," he wrote in an analysis.
A look at STR's top 25 markets illustrates the pinch that leads Freitag to question the timing of this cycle's end. RevPAR was down by 0.4 percent in these markets, based on an occupancy decline of 1 percent and a weak increase (0.6 percent) in average daily rate. That combination -- RevPAR declines based on occupancy declines, combined with weak ADR increases -- is how Freitag expects the current cycle will end. "I thought we could hold that reality off a bit longer," he added, "but here we are."
The numbers, however, were strongly affected by group declines in Philadelphia and Cleveland, which last year hosted the Democratic and Republican conventions, respectively. Philadelphia ADR was down by 21.5 percent compared with last July. And the two cities accounted for 20 percent of the total national decline in group demand, and 80 percent of the decline in group revenue.
The end doesn't appear to be coming too soon according to STR's latest forecast revision, however. The company had underestimated demand increases for the year so far, so those were revised upward. Average daily rate expectations were lowered just a bit. 
The latest forecast now calls for increases of 2 percent to both supply and demand this year, with occupancy remaining flat and both ADR and RevPAR increasing by 2.3 percent. For 2018, STR predicts supply increases to outpace demand, 2.1 percent to 1.9 percent. Occupancy is forecast to drop by 0.2 percent, while ADR will increase by 2.5 percent and RevPAR growth will remain steady at 2.3 percent.