Meeting Mentor Magazine

March 2019

U.S. Hotel Revenues Still on the Rise

Need another sign that the U.S. hotel seller’s market is still going strong? Look no further than the latest data from HotStats, which found October to be a banner month for revenues across all departments at full-service U.S. hotels. Even with costs on the increase — labor ticked up 0.1 percent and overhead increased 0.3 percent — hotels saw a 3.2 percent year-over-year increase in revenue per available room (RevPAR).

Helping to drive that RevPAR is average room rate, which hit $223.36, a high not reached since before the global financial crisis hit 10 years ago. Room rates, also up 3.2 percent, join food and beverage (up 2.2 percent) and conference/banqueting (up 2.5 percent) in driving profits with total revenue per available room (TRevPAR) reaching $294.57 in October, up 3.4 percent over October 2017.

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While labor and overhead increases mean these expenses now absorb 52.4 percent of total revenue, rooms, F&B and conference/banquets more than made up the difference, with profit margins reaching almost 43 percent of total revenues in October.

“It was an extremely positive month of performance for hotels in the U.S., with continued growth leading to new highs across top- and bottom-line metrics,” said David Eisen, director of hotel intelligence and customer solutions at HotStats. “Still, hotel owners and operators must keep a vigilant eye on expenses, as they show no signs of attenuating.”

Hotels can thank the commercial sector, which accounted for more than 45 percent of demand for the topline growth, though all demand segments experienced increases, including corporate (up 2.6 percent), residential conference (up 2.1 percent), and individual and group leisure (up 2.6 percent and 4.4 percent respectively).

Note to planners: While you may not have been able to know when you booked Boston two years ago that the Red Sox would win the World Series this fall — bringing playoffs, World Series games and a whole lot of people to Beantown — you should know the effect such an event has on local hotels. The baseball-related influx raised Boston hotel TRevPAR 3.4 percent over the same time last year, according to HotStats. Similarly, Austin, Texas, saw its occupancy soar almost 88 percent thanks to the F1 Grand Prix Circuit of the Americas. The event brought about 250,000 fans to the area in October. Average room rates also rose 1.8 percent, and hotels in the Texas capital experienced a 4.3 percent year-over-year increase in room revenues and a 3.4 percent increase in TRevPAR.

What Goes Up…Must Keep Going Up
CBRE Hotels Americas Research is predicting that the U.S. economic boom is going to continue to fuel hotel growth in 2019 — for the 10th consecutive year. The company’s December 2018 edition of Hotel Horizons® is forecasting that U.S. occupancy levels will rise to more than 66 percent, mainly due to a 2.1 percent increase in demand that offsets the 1.9 percent estimated net increase in supply. The company uses the historic relationship between changes in lodging demand and the U.S. economy to project what it believes the future demand will be.

Factors that have been positively influencing the lodging industry this year — changes in tax laws and capital spending along with higher wage growth and consumer confidence — will continue into 2019, according to John Corgel, professor of real estate at the Cornell University School of Hotel Administration and senior advisor to CBRE Hotels Americas Research. Among the markets expected to outpace inflation are Jacksonville, Fla.; San Jose/Santa Cruz, Calif.; Newark, N.J.; and Atlanta, all of which are forecast to achieve at least a 4.4 percent growth in average daily room rate (ADR).

“Despite the continuation of demand growth and record occupancy levels, concerns persist about the level of room-rate increases. To that, I direct people’s attention to the pricing dynamics we are seeing at the local level,” Corgel said. “Looking at the Hotel Horizons market data, we find a correlation between the occupancy level, changes in occupancy and changes in ADR. In short, markets with the greatest increases in ADR are those with the highest occupancy levels and strongest changes in occupancy. It is apparent that property-level operators in high-performing markets are taking advantage of the basics of supply and demand when setting their room rates.”

What goes up, of course, can’t go up indefinitely. While CBRE doesn’t expect the lodging industry, or the economy in general, to hit a recession over the next four years, higher interest rates, equity market corrections and other risk factors could slow down growth somewhat in the U.S. hotel industry in the shorter term. However, CBRE expects any slowdowns to be “relatively mild and short.”

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The December 2018 edition of Hotel Horizons® for the U.S. lodging industry and 60 major markets can be purchased on CBRE’s website. — Sue Pelletier

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