OVERALL, 2018 WAS another record-breaker for the U.S. hotel industry. However, the year ended a little down, and the first week of January saw losses across all metrics, due in some part to supply catching up to demand.
Occupancy in 2018 rose 0.5 percent over 2017, which also was a record breaking year, to an average of 66.2 percent. ADR rose 2.4 percent to $129.83, and RevPAR rose 2.9 percent to $85.96. That was the highest performance STR has ever benchmarked based on absolute values, but the news was tempered
“As projected in our first 2018 forecast back in January, U.S. hotels had a good, not great year,” said STR President and CEO Amanda Hite. “Operating most of the year in a pretty favorable macroeconomic environment, the industry reached its highest-ever annual occupancy and grew RevPAR for the ninth year in a row—albeit at a rate lower than the long-term average. All classes recorded RevPAR gains, but the upper upscale and upscale segments showed occupancy declines, and we expect this trend to continue throughout 2019.”
Supply also grew at record levels in 2018 with 1.9 billion room nights available while demand increased to mostly match it, up 1.3 billion room nights sold. However, based on percentage growth for the year, demand’s 2.5 percent growth exceeded supply’s 2 percent growth.
That approaching balancing of supply and demand began to show more by December, when occupancy rose only 0.1 percent to 54.1 percent while ADR rose 1.8 percent to $124.28 and RevPAR rose 1.9 percent to $67.20. However, in the last week of December, occupancy fell 1.8 percent to 50.9 percent, ADR dropped 0.5 percent to $130.57 and RevPAR went down 2.3 percent to $66.52.
The first full week of 2019 also was not good to the U.S. hotel industry. Occupancy dropped 5.9 percent to 53.5 percent, ADR went down 2.3 percent to $125.69 and RevPAR dropped significantly, 8 percent to $67.21. That downward occupancy trend may become a familiar sight, said Jan Freitag, STR’s senior VP of lodging insights.
“The growth in number of rooms available is now basically in equilibrium with demand growth,” Freitag said. “This trend will likely continue and will likely lead to occupancy declines going forward. This can already be seen in class performance where the upper upscale, upscale and upper midscale segments recorded a negative year-over-year occupancy comparison. The same was true in the Top 25 Markets where occupancy in aggregate declined 1.8 percent and in 16 markets individually.”
Super Bowl LII host Minneapolis/St. Paul, Minnesota-Wisconsin, saw the highest increase in RevPAR for 2018 among the top 25 markets, increasing 6.9 percent to $82.96. ADR in the city rose 5.8 percent over the previous year to $122.66, the second-highest jump for the year following Miami/Hialeah, Florida, where ADR rose 6.1 percent over 2017 to $199.35.
Consequently, Miami saw the second-largest increase in RevPAR, up 6.3 percent to $152.81. Philadelphia, Pennsylvania-New Jersey, had the highest rise in occupancy, up 3.8 percent to 71.1 percent, and the third-largest increase in RevPAR, up 6 percent to $94.60.
But while 21 of the top 25 markets saw RevPAR growth in 2018, the news was not all good, Hite said.
“With absolute occupancy at 73.6 percent, the top 25 markets actually showed a slight occupancy decline as supply growth hit 2.7 percent,” Hite said. “Luckily those larger markets still command some pricing power as displayed through a 2.7 percent increase in room rates. It will be interesting to monitor whether or not this can continue given the continued influx of new rooms into those markets.”