STR and Tourism Economics Predict Slower RevPAR Growth in 2014/2015

A forecast predicting that revenue per available room (RevPAR) will continue to grow at a decreasing rate in 2014 and 2015 is no reason to panic. Although the US hotel industry will face challenges if STR and Tourism Economics analysis of industry trends is correct, there will still be growth.

According to the forecast model, RevPAR growth for 2014 is expected to come in at 5.3 percent in 2014 and 4.7 percent in 2015. In 2013, STR/Tourism Economics was overly optimistic when it predicted 5.8 percent growth and the actual number came in at 5.5 percent. Actual demand growth for 2013 was 2.3 percent, which was better than expectations for a 2.1 percent growth in demand. For 2014, the forecast for the growth in demand for hotel rooms is predicted to be 2.2 percent.

Why Do the Numbers Matter so Much?

Hotel owners, executives, managers, and investors all pay close attention to RevPAR, ADR (average daily room rates), and occupancy rates to measure hotel performance. For those closely involved with daily operations, keeping track of monthly data can help them recognize early trends and perhaps take steps to avoid problems in the future. For investors, the numbers are an indication of the health of individual brands as well as the lodging industry as a whole.

Monthly Reports

Hendersonville, Tennessee-based, Smith Travel Research (STR) is a leading provider of data and market analysis for the hotel industry. Just about every large hotel chain and many smaller hotel operators anxiously await the newest monthly reports. Positive numbers for all three key performance metrics for the hotel industry– RevPAR, Occupancy, and ADR – were reported for March, 2014 by Smith Travel Research.

March 2014 RevPAR

In March of 2014, US hotels saw a 7.2 percent increase in revenue per available room as compared to the same period in the prior year. In dollar figures, RevPAR was up $4.92 from $70.39 in March, 2013 to $75.31 in March, 2014. The surprising gain was attributed, at least in part, to the luck of the calendar.

In 2013, both Easter and Passover began near the end of March. Recognizing that many employees would be inconvenienced if they had to travel and attend business meetings and conferences, meeting planners pushed those meetings into early April. While the influx of business travelers drove RevPAR up in April, 2013, it hurt business in March of 2013. In 2014, just the opposite situation took place. Both Passover and Easter started in April of 2014. Business planners loaded-up on March business meetings and travel and that skewed the March, 2014 RevPAR number higher.

March’s excellent figures can be attributed to both a surge in business and the pricing power of the hotel industry. Hotel managers were able to raise their average daily rates while also enjoying some growth in occupancy rates. While April, 2014 RevPAR figures were not yet available at the time this article was written, it is expected that, when published, they will be more subdued.

Looking at the Top 25 Markets, RevPAR increased year-over-year by at least 15 percent in the following cities.

• Denver was up 37 percent to $82.56
• Nashville was up 23.9 percent to $92.17
• Atlanta was up 20.4 percent to $66.32
• Dallas was up 17.9 percent to $69.85
• St. Louis was up by 15.7 percent to $60.93
• Houston was up by 15.3 percent to $84.48

While many other Top 25 Markets saw positive growth rates, one city stood out because it had a negative growth rate of 8.3 percent, down to $180.21. Can you guess? New York took first prize for the biggest decline in RevPAR for the month of March, 2014.

March 2014 Occupancy Rates

In 2014, occupancy rates grew by 2.9 percent in year-over-year comparisons for the month of March. The rate increased from 63.7 percent in 2013 to 65.3 percent in 2014. Denver showed the most improvement with an 18.4 percent increase to 75.7 percent and Atlanta followed with an 11 percent increase to 72.4 percent. Miami and New York City tied for the dubious distinction of having the lowest (negative) occupancy growth rates of -3.5 percent. Nonetheless, both Miami, with an occupancy rate of 85.8 percent, and New York, with an occupancy rate of 81.2 percent, far exceeded the national occupancy rate of 65.3 percent.

Occupancy rates can be affected by many factors including the supply of new rooms and the popularity of a particular destination. With more than 50 million annual visitors, New York will have a higher than average occupancy rate even with temporary dips in the occupancy growth rates. Bad weather can explain a weak occupancy growth rate and the economy might also influence travel habits. Averages are fine for establishing a baseline number, but to know how your hotel is doing, you have to compare your historical numbers to the current numbers and then compare your hotel’s occupancy rate to that of the other competitors in your local market.

March 2014 ADR

The average daily rate for March, 2014 grew by 4.1 percent when measured against the March, 2013 average daily rate. ADR for March of 2013 was $110.57 and it rose to $115.28 for March of 2014. ADR growth rates for March of 2014 were greater than 10 percent in five of the Top 25 Markets that were analyzed by STR.

• Denver was up 15.7 percent to $109.00
• New Orleans was up 14.8 percent to $169.04
• Nashville was up 14.7 percent to $117.15
• San Francisco/San Mateo was up 11.0 percent to $185. 59
• Houston was up 10.4 percent to $108.29

New York City fared the worst with a 5.0 percent decline in ADR, dropping to $222.02

April 2014 STR Pipeline Report

US hotel development is moving forward at a steady report as evidenced by the positive April, 2014 pipeline report. The pipeline report includes projects under construction, and in the planning stage, but does not include projects in the unconfirmed stage. For the month, 3,174 projects, representing 383,348 new rooms, were either under construction or in the planning phase. Compared to April, 2013, there were 16 percent more rooms under contract and a 42.6 percent jump in rooms under construction.

Upscale and Upper Midscale properties dominated the increase in hotel development projects, representing 68 percent of all rooms under construction and 60 percent of rooms in the final planning stage. Compared to April of 2013, the number of rooms under construction in April, 2014 was up by more than 50 percent.

One segment that did not fare well in year-over-year comparisons was Economy hotels. There were only 899 rooms under construction in April of 2014, representing a 22 percent decrease in new rooms under construction in April of 2013.

Looking ahead for the rest of 2014 and 2015, growth in the hotel industry is slowly coming down from previously higher levels. RevPAR is still expected to grow by about 5 percent over the next 18 months. Some cities, like Denver and Nashville, should do much better than the average, while New York may struggle to meet the 5 percent national growth rate.