Is inflation masking the current strength of ADR? For the total U.S., real ADR priced in 2014 about the same rate it did in 1999 and 2006.
Much has been made of the pricing hotels have been able to achieve in the last 12 months due to occupancy levels hitting or surpassing previous peaks. But what’s interesting is to contextualize the view of average daily rate by removing inflation from the equation.
Is inflation masking the current strength of ADR?
The reality is, for the total United States, real ADR priced in 2014 about the same rate it did in 1999 and 2006. Inflation-adjusted rates don’t change much over time for the typical U.S. hotel, which averaged about $109 going back to 1987. That long-term average, adjusted for inflation, has fluctuated little over the years, bottoming out at $99 in 1993 and reaching its apex in 2007 at $119.
In 2014, national ADR hit $115. While only three previous points of time had a higher rate, it still suggests there’s further room to grow, and we’re already seeing evidence of continuing rate gain through the first two months of 2015.
How does real rate look by market? If we extract data for the top 25 markets, most follow a similar trend, though New York City stands out in terms of its premium and volatility.
New York City, represented by the top red line, experienced historically sharper peaks and valleys than the average top 25 markets, through its rate growth has been more anemic since 2010. By contrast, Oahu Island, Hawaii, represented by the purple line immediately beneath New York City, has seen surging growth in its real ADR in recent years. Oahu’s real ADR reached an all-time peak in 2014, one of only five markets to do so.
The average top 25 market achieved 2014 ADR levels about 9% below their peak levels, in real terms. The five markets that reached peak levels of real ADR in 2014 are:
- Los Angeles/Long Beach, California;
- Miami/Hialeah, Florida;
- Nashville, Tennessee;
- Oahu Island; and
- San Francisco/San Mateo, California.
Most of these exceptionally strong markets are enjoying low supply levels, allowing operators to drive rate. Some markets, such as Nashville, have been buoyed by significant, high-end supply, which is helping to lift the entire market.