January set records across all key performance indicators in the U.S. hotel industry, but some underlying factors suggest it might not be sustainable.
HENDERSONVILLE, Tennessee—January is always normally a pretty uninspiring month, and the STR data this time around was overall pretty uninspiring, too, as some market-specific events and hard comparisons with last year drove results in various directions. (STR is the parent company of Hotel News Now.)
1. January KPIs at all-time highs
This January was the best on record, with key performance indicators at record levels for the month. Still, the absolute level of occupancy was 54.5%, so almost half the rooms in the U.S. stayed empty for the month. Revenue per available room increased 2.9%, the 95th month of consecutive RevPAR growth. This was driven by 2% average-daily-rate growth and some occupancy growth (+0.9%), but I think the story is that room demand continued to grow, increasing 2.9%. Of course, we expect room-demand growth to continue for a while, but the strong demand is still fueled by hurricane cleanup crews, so the underlying data is quite a bit weaker (just +2.2% excluding Florida and Texas).
Here is the table that I have been showing for the last few months (a look at the U.S. and then the U.S. data without Florida and Texas):
2. DC comparison a drag on total US results
Part of this month’s comparison with January 2017 was the presidential inauguration and the Women’s March, which last year lifted Washington, D.C., and the overall U.S. data. This year, of course, the reverse is true:
So, the decline in D.C. RevPAR actually hurt the U.S. numbers by around 100 basis points.
3. Transient ADR continues to be anemic
Transient occupancy growth was flat, and the segment showed limited pricing power (+1.8% ADR). Given that the pipeline seems to slow, this might bode well for the transient part of the RevPAR equation.
If demand continues at a healthy clip and the supply growth on the upper end slows, occupancy may continue to increase and ADR may increase a tad bit better than what we have seen. Maybe. As I pointed out before, transient ADR growth is anemic at best. The table below shows the last seven months overlaid with the change in occupancy:
So, turns out January was actually an outlier for the better. But a trend it is not, trust me. The general trend of sub-2% (or really sub-1.5%) ADR growth is concerning given that expenses are probably rising much faster.
4. Pipeline data
I received a call admonishing me for calling the in-construction data “down for the third month” in December when the November number was clearly positive (+0.6%, which I called flat, and flat is the new down, so there). But, I agree, guilty as charged. So, how about: “Rooms in construction declined in three of the last four months”? Better?
The sequential monthly increase of 4% is probably not a super big deal given that a few projects probably rushed to break ground in 2017, but it might be worth watching. I’ll take the annual change for now and declare that this is a good thing that will not overheat the expected supply percent change in 2018 and 2019.
One notable addition to the active pipeline is Marriott International’s Las Vegas Strip development with the takeover of the Fontainebleau site. The 4,000-room property will include an Edition and a JW. They gave it the catchy name “The Drew”—whether it was named after Dr. Charles Drew, whose work started the American Red Cross Blood Bank, we will never know.
5. Occupancy and supply pace
Hard to believe, but the 12-month-moving-average occupancy increased again to a new record of 66%, continuing a pattern of acceleration that goes back to April 2017. Well, I guess it is not that hard to believe given the last few months of strong demand increases.
It not only accelerated, but increased by 100 basis points in 10 months, so a very solid increase in an environment when most pundits thought the best was behind us. Of course, the hurricane-related demand increases helped, but still there seems to be something going very right with room demand in the U.S. hotel industry right now. How sustainable this is through this year, of course, is the question on most observers’ minds.
At the same time, supply growth is increasing, but not quite at the same pace:
So, the supply increase in 10 months was only 30 basis points, which then led to the occupancy increases.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.