The U.S. hotel industry will continue to see slower growth over the next two years but will remain relatively strong, according to CBRE Hotels Research. That reduction in revenue growth will also make it harder for hotels to turn a profit.
Occupancy is expected to go down slightly but remain above 65.5 percent through 2021, according to CBRE’s December 2019 edition of Hotel Horizons. During the same time period, RevPAR is expected to grow at less than 1 percent.
The forecast for the rest of 2019 has improved some, with the most current edition of Hotel Horizons predicting 2 percent increase in demand rather than the 1.8 percent in the previous issue. Occupancy is expected to stay around 66.1 percent, the record set in 2018, marking the 10th consecutive year without a decline in occupancy.
However, the U.S. lodging industry’s recovery from the “Great Recession” has seen many deviations from economic norms, said R. Mark Woodworth, CBRE’s senior managing director. For example, CBRE now is forecasting annual ADR in 2019 to be $131.08, 0.9 percent over the $129.97 national average in 2018 and resulting in a relatively low 0.8 percent rise in RevPAR.
“Despite an economy that has supported strong growth in lodging demand and record occupancy levels, hoteliers have been unable to achieve gains in ADR commensurate with what we have seen during equally strong market conditions,” Woodworth said. “We believe an environment of high occupancy with low ADR growth will persist for the foreseeable future.”
Growth in local market supply, low inflation and competition from Airbnb and similar stay-share businesses have contributed to the slowing ADR growth rate. Occupancy levels are expected to continue to decrease through 2021, but uncertainty, tighter lending requirements and rising construction costs may also dampen the addition of new supply, Woodworth said.
ADR growth is expected to stay below 1.5 percent through 2022, limiting RevPAR growth to under 1 percent through 2021. RevPAR is forecast to grow 2.1 and 3.5 percent in 2022 and 2023 respectively.
Profit margins will probably shrink in the current environment, especially with rising labor costs. Hoteliers will have to keep expense growth under 1.5 percent to achieve nominal gains in gross operating profits, said John “Jack” Corgel, CBRE senior advisor and professor of real estate at the Cornell University School of Hotel Administration.
“Considering expenses have increased at an average annual pace of 4 percent since 1960, the challenge ahead is clear,” Corgel said. “Of course, this is all tempered by the fact that GOP margins are near their all-time high.”
Woodworth also said despite the slowing the industry is strong.
“U.S. hotels are operating at near record levels of occupancy and efficiency,” he said. “The growth story is not great, but we expect the U.S. lodging industry to circle back to 2018 performance levels, and beyond, starting in 2022.”