CBRE Hotels Americas Research revised its forecast for 2019 after the third quarter, accounting for economic boosts from tax-law changes, capital spending, improving wage growth and consumer confidence.

WITH 2019 LITTLE more than a month away, prospects for U.S. hotels in the new year are looking positive, according to CBRE Hotels Americas Research’s December 2018 edition of Hotel Horizons. CBRE is forecasting a 10th consecutive year of growth for the industry.

The upbeat 2019 forecast is driven by a projected 2.1 percent increase in demand that should easily offset an estimated 1.9 percent net increase in supply for the year. This outlook comes after CBRE revised its predictions following 2018’s third quarter to account for the economic boost from tax-law changes, capital spending, improving wage growth and consumer confidence.

“We have already seen the positive influence these factors have on the economy, and lodging industry, in 2018.  The impact will persist in 2019,” said John “Jack” Corgel, professor of real estate at the Cornell University School of Hotel Administration and senior advisor to CBRE Hotels Americas Research.

The revised numbers increased the CBRE demand forecast from 1.9 percent in September to 2.1 percent now, said CBRE Hotels Americas senior managing director R. Mark Woodworth. “The direct result is a boost in our 2019 projected occupancy level from 66.1 percent to 66.2 percent,” Woodworth said. “From1988 through 2017, the average annual gain in accommodated room nights in the U.S. was 2.0 percent.  For 2018 and 2019, we believe demand growth will exceed this long-run average.”

Growth is expected to be even better in the top 60 city markets CBRE tracks, with demand expected to rise to 3.3 percent for those markets in 2019. Most hotel activity takes place in large cities, and those markets will also see more supply growth as well, 3.6 percent, compared to the national level of 1.9 percent. Jacksonville, Florida; San Jose-Santa Cruz and San Francisco, California; Newark, New Jersey; and Atlanta, Georgia are expected to see 4.4 percent or more in ADR growth in 2019.

“However, despite the surge in new competition in these preferred markets, all 60 will enjoy an increase in ADR,” Woodworth said. “In fact, we are forecasting ADR increases greater than the projected 2.2 percent pace of inflation in 39 of our 60 markets.”

Concerns about room-rate increases slowing despite the continuing growth in demand and occupancy are unfounded, Corgel said.

“In short, markets with the greatest increases in ADR are those with the highest occupancy levels and strongest changes in occupancy,” he said. “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.”

However, the outlook for 2020 and beyond is a little more subdued. CBRE does not expect a recession any time before 2022, but higher interest rates, equity market corrections, credit-market problems and some shrinkage in employment could slow the industry’s growth in 2021. That slowdown is expected to be “mild and short,” CBRE said.

“The year 2021 seems far away for most industry participants, however, those with an ownership interest need to be planning their future investment strategies,” Woodworth said. “In the meantime, the magnitude of profit growth may not be spectacular, but the probability for revenue growth is solid, and operating margins remain well above historical levels.”