Tipping point: How RevPAR change could indicate a turn
 
Tipping point: How RevPAR change could indicate a turn
13 AUGUST 2019 7:46 AM

Twenty-two weeks out of the first 31 weeks in 2019 have already registered more tracts of RevPAR declines than in 2018. This research takes a look at how change in RevPAR could imply that a slowdown for the U.S. hotel industry is near.

HENDERSONVILLE, Tennessee—In the middle of 2017 we conducted a deep dive into submarket (or tract) RevPAR performance to better understand how the change in revenue per available room could signal an impending slowdown for the U.S. hotel industry overall.

One takeaway was that the number of submarkets that report negative RevPAR change has an obvious relation to the total U.S. numbers; the more tracts report declines, the more likely STR reported a total U.S. RevPAR drop. The “tipping point” according to our calculation was that historically when just under 44% of submarkets report an annual decline then the U.S. number tips into negative territory.

Over the last few quarters we have occasionally rerun the counts as Wall Street analysts and investors asked us about the state of the industry and the specific submarket counts with negative RevPAR change. As the U.S. data for the first part of 2019 was somewhat underwhelming with RevPAR growth of only 1.2%, we thought it prudent to look at the data set again to see what insights can be gleaned.
Through 31 weeks of 2019, the average number of submarkets with declining RevPAR was 45.6%. This is of course only data for just over half the year but the trend seems to be clear. A larger percentage of tracts recorded declines than in prior years. The chart below shows the comparison of the weekly data for 2018 and 2019 and indicates the percentages of submarkets with declining RevPAR.

Weekly RevPAR data can be a hard to parse since calendar shifts impact the results year over year. That said, the straight average of tracts with declines in 2018 through the first 31 weeks was 38.9%, in 2019 it now stands at 45.6%.

It is worth pointing out that the “tipping point” calculation we conducted in 2017 took into consideration three prior recessions and that the hotel industry in 2019 is a very, very different industry. So, we would not interpret the current 31-week data as a clear indicator that U.S. RevPAR will decline. Rather, it is a sign that is worth monitoring.

A few other takeaways from the data set are of note:

• In 22 out of the first 31 weeks in 2019, the count of tracts with RevPAR declines was higher than in 2018.
• In 2018, nine weeks showed over 44% of submarkets with declines. In 2019, the week count doubled to 19 weeks.

To observers of the weekly and monthly STR data, it should come as no surprise that the overall hotel industry results are slowing. Total U.S. RevPAR growth of 1.2% implies that a number of hotels, submarkets and markets are already in a RevPAR recession. The question remains if the continued slowing in RevPAR growth on the tract level will eventually lead to decline in the U.S. numbers or if the industry will just coast along with anemic growth rates for the foreseeable future. STR is not forecasting RevPAR decline in 2019 or 2020, so we will continue to monitor the submarket level data and see if any material shifts in fundamentals would lead us to change our outlook.

Tingting Duan, research analyst in STR’s research and development department, contributed the data to this article.

This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.

1 Comment

  • Denise Cote August 16, 2019 11:46 AM Reply

    How does supply change in these submarkets play into the analysis?

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