U.S. Hotels on Alert After Q1 Occupancy Decline

The U.S. hotel market suffered a 0.5 percent decline in occupancy during the first quarter of 2016.  This is the first year-over-year decline in occupancy since the fourth quarter of 2009 according to STR.

Based upon the recently released June 2016 edition of Hotel Horizons®, the annual occupancy rate for U.S. hotels is forecast to decline in both 2016 and 2017, the result of supply increases outpacing growth in demand.  U.S. occupancy levels will persist above the 65 percent mark, thus providing pricing leverage for hotel operators.  For 2016, average daily room rates (ADR) are projected to increase by 4.3 percent, followed by a 4.9 boost in 2017.  The gains in ADR will offset the declines in occupancy, thus resulting in revenue (RevPAR) gains of 4.2 and 4.7 percent the next two years.

“The first quarter decline in occupancy is a concern for U.S. hotel owners and operators,” said R. Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research.  “The industry has been on a good run for the past five years, and there were no obvious economic warning signs foreshadowing a decline in occupancy.  That being said, the slight pull-back from the record occupancy level achieved in 2015 is not particularly surprising.”

The cause of the decline in occupancy was a 1.5 percent increase in supply, accompanied by an increase in demand of just 1.0 percent.  “It is important to note that U.S. lodging demand did grow during the first quarter of 2016.  While ADR increases are starting to mute demand growth, the economy remains healthy and will generate increases in lodging demand for the foreseeable future.  We are simply at that point in the cycle when supply growth is outstripping demand,” Woodworth noted.

“Compared to the 6.0 to 8.0 percent annual increases in RevPAR the industry has enjoyed the past five years, our forecasts of RevPAR growth for the next two years seem quite modest.  However, we are still projecting growth in RevPAR, and in real terms, revenue gains will occur at more than twice the pace of inflation,” Woodworth added.

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