The occupancy rate for U.S. hotels is expected to hit 65.9 percent this year and remain at that level through the end of the decade, according to the December 2017 edition of CBRE Hotels’ Americas Research’s Hotel Horizons.

THE U.S. LODGING industry can expect to enjoy record occupancy rates through the end of the decade, according to the December 2017 edition of CBRE Hotels’ Americas Research’s Hotel Horizons. However, increased supply growth, the sharing economy (which includes the traditional hotel’s biggest competitor Airbnb) and other factors will continue to limit ADR.

Hotel Horizons predicts U.S. hotels’ occupancy rate will hit 65.9 percent by the end of this year and remain roughly at that level into 2020. If that happens, it will mark a 10-year period of uninterrupted growth in occupancy that has not been seen for 86 years.

“CBRE Research expectations for U.S. gross domestic product, employment and income growth for the next two years should support lodging demand growth of two percent or more per year, which slightly exceeds our expectations for the net increase in supply over this period,”  said R. Mark Woodworth, CBRE Hotels’ Americas Research senior managing director. “If we continue to see upgraded expectations for the economy, demand growth may exceed these expectations, and all industry participants will benefit as a result.”

Nevertheless, hotel owners will continue to face a restriction on their ability to raise rates from, along with the abundance of supply and pressure from the sharing economy, low inflation and best-price guarantees issued to encourage guests to book directly rather than through costly online travel agencies. CBRE forecasts ADR to grow only 2.2 percent in 2017 and 2.5 percent in 2018, below the long-run average annual ADR growth rate of 3.1 percent.

“Low ADR growth could have an impact on the profitability of hotels.  With compensation costs rising more than 4.0 percent, hoteliers may not be able to sustain the growth in profit margins observed the past seven years,” Woodworth said. “On average, hotels still should be able to enjoy gains on the bottom-line, but the flow-through will not be as efficient.”

To compensate, hotels owners and operators should closely monitor their local market conditions. Those local conditions can dictate up to 80 percent of a hotel’s performance, according to CBRE. “For 2018, approximately half of the markets are forecast to achieve real growth in RevPAR, but more than a half dozen will suffer actual declines in this important measure,” Woodworth said.

Supply is perhaps the single most important local metric to watch, according to CBRE. In the 31 markets where RevPAR is not predicted to grow beyond a projected 2.1 percent inflation rate, average lodging supply increases are around 3.8 percent. In the 29 markets that should see RevPAR growth above the inflation rate the supply growth rate is 2.7 percent.

“Pipeline activity across the 60 markets we analyze is very polarized and is the major influencer of our forecasts for occupancy and ADR change,” Woodworth said. “The good news is that supply growth in several of these markets moderates beyond 2018.”