Demand trickle slightly lifts US hotels in July
 
Demand trickle slightly lifts US hotels in July
27 AUGUST 2020 8:26 AM

U.S. hotels performance continued to be slightly better month-over-month in July as the luxury segment was able to stand firm on rates.

NASHVILLE, Tennessee—U.S. hotels in July continued their steady performance improvement, STR data shows.

(STR is the parent company of Hotel News Now.)

The trends continued into August as occupancy hit 50% in the week ending 15 August, reflecting growing demand amid ongoing summer travel.

Operators, however, are preparing for a post-Labor Day slump.

1. Small victories in July
July revenue per available room declined 52%, a slightly smaller decrease than was recorded in June. The weekly data shows RevPAR change is now firmly better than -50%.

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

Room demand is increasing, and occupancies are slowly rising, but the metric we don’t really talk about much is average daily rate. In July, ADR decreased around 25% from July 2019, which probably reflects the mix shift in the consumers—away from corporate to more leisure. This implies that as corporate demand returns, we will see some pricing power on the upper end of the segment scale, which could then lift performance once again.

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

2. New forecast for 2020, 2021
STR President and CEO Amanda Hite presented the new STR and Tourism Economics forecast during the online Hotel Data Conference. We project 2020 RevPAR to decline 52.3% and 2021 RevPAR to increase 37.9%. It is slightly worse than the forecast presented a month ago (-50.6% in 2020, +40.6% in 2021), but the COVID-19 data still oscillates, and any new flareup makes a cohesive return of business travel demand less likely. Hotels this year are going to be less than half full and even though the ADR change can be explained by mix shift away from corporate groups, the continued slow-demand environment does not bode well for pricing power going forward. We actually only expect a 5.6% rate increase in 2021.

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

The 2021 results are still 34% below 2019 KPIs; and, fun fact, 2021 RevPAR is expected to be on par with the 2010 RevPAR. Actually, not so fun.

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

3. Standard vs. total room inventory (TRI) occupancy comparison
The continued closure of hotel rooms has made year-over-year comparisons a bit harder as the supply denominator is shifting. STR rolled out the additional “TRI” methodology which debuted this month alongside the standard monthly results. The occupancy math is exactly the same; we are just using the number of total rooms in a country/market/submarket versus the lower, standard, room count, which omits temporarily closed rooms. In July, the U.S. standard occupancy (accounting for closed rooms) was 5.2% lower than the TRI occupancy.

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

4. Class data
As has been the trend, hotels on the lower end of the chain scale sold over half their inventory, and higher-end hotels were only one-third filled. The one KPI that stood out to me was that luxury room rates only declined 7.4% year over year, pointing at the high-end hotels seemingly not discounting (as much). This could point at the resilience of luxury hotels with regards to pricing and maybe—gasp—the application of a lesson learned from the 2008/2009 recession? Let’s see how this continues.

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

The data for the last four weeks shows continued improvement and that the lower-rated classes sold over half their open inventory. I would guess that this story will hold through Labor Day. After that, it’s anyone’s guess.

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

5. Pipeline data
We counted 208,000 rooms in construction in July, a 12,000-room drop since April and a sign of the continued slew of openings in the U.S. But the construction pipeline will likely not backfill since the number of rooms in planning is below where it was a year ago.

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

If you have been a regular reader of this column, you know that I do not put a lot of stock in the final planning/planning year-over-year percent changes because they move somewhat erratically from month to month. The same is likely true this month. Be that as it may, fewer rooms will be conceived and financed going forward, and that will impact the construction pipeline negatively—but that will also lessen the new competition in the next three to four years.

We finally got notice about projects that were completely shelved. But our count likely understates the magnitude of projects that live now only in a drawer or on someone’s CAD table.

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

Jan Freitag is the SVP of lodging insights at STR.

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.

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