US hotels improving weekly, but Labor Day looms
US hotels improving weekly, but Labor Day looms
07 AUGUST 2020 8:30 AM

U.S. hotel performance continues to improve each week, but post-Labor Day demand presents a challenge without corporate business to replace leisure travel.

HENDERSONVILLE, Tennessee—U.S. hotel performance continues to improve week to week and month to month, but the hotel industry is nearing the traditional end of the summer leisure travel season, a source of demand that has so far buoyed hotels through the pandemic.

In his latest weekly video insights into U.S. hotel performance, STR SVP of Lodging Insights Jan Freitag said preliminary July data shows improvements in revenue per available room by almost 10 percentage points each month since April. STR is the parent company of HNN.

RevPAR was down year over year in July by a little more than 50%. Weekend demand continues to be strongest, and on 31 July to 1 August, hotels in the U.S. sold almost six out of every 10 rooms.

Source: STR, © 2020 CoStar Realty Information, Inc.

The rate of growth for room demand, however, is rapidly slowing, Freitag said. From the week of 11 April through the end of June, room demand grew by almost 8% each week. Over the last five weeks, however, that has slowed to below 2%, he said.

Freitag said he wouldn’t be surprised by slight improvements in RevPAR all through August.

“The big question then is what happens after Labor Day when people are back in school or virtual school as it may be,” he said. “There is limited to no corporate demand following that.”

Class performance
Hotels at the lower end of the chain scale continue to outperform full-service hotels, Freitag said. For the week ending 1 August, economy-class hotels sold 56.6% of their rooms while midscale and upper-midscale hotels sold over half of their rooms. Hotels in the upper-upscale segment had about 30% of their rooms occupied, meaning two out of three were empty.

Source: STR, © 2020 CoStar Realty Information, Inc.

Many of the real estate investment trusts that have reported second-quarter earnings pointed to resorts as lifting overall portfolio averages, Freitag said.

“What is happening at the REIT space is certainly being mirrored in our data as well,” he said. “If you have the word resort in your name, meaning you are a resort, you are charging quite a high premium in room rate compared to all other upper-upscale hotels.”

Profits and loss
The June P&L data shows only four markets had positive gross operating profit per available room: Tampa/St. Petersburg, Florida; Anaheim/Santa Ana, California; San Francisco; and Dallas. San Francisco and Dallas performance is “certainly nothing to write home about,” as it was barely positive, Freitag said.

Source: STR, © 2020 CoStar Realty Information, Inc.

What stands out in the P&L report is that, compared to previous months, particularly from May to June, GOP per available room change accelerated in most markets, he said. That’s good news, but it’s worrisome that the total revenue per available room is not increasing much at all.

Minneapolis TRevPAR is only up $2, for example, Freitag said.

“What is positive to note is that the universe of properties that give us their P&L data on a monthly basis now (includes) some full-service properties that are actually GOP-positive because their occupancies are over 50%,” he said.

It’s not as big a surprise on the limited-service side, where occupancy of more than 40% continues to produce positive GOP percent of revenue and positive net income as a percent of revenue, he said.

“We have reported that in the past, and the pattern remains the same,” he said.

For more on Freitag’s weekly update, watch the video below:

Editor’s note: The video included in this article was filmed by Jan Freitag, SVP of lodging insights at STR, on 5 August and edited and produced by CoStar Group. HNN is a division of STR, a CoStar Group company.

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