In its hotel industry forecast, CBRE Hotels’ Americas Research reports that while new development activity continues to accelerate, ADR is taking a dive following a slow start to the year. According to the firm’s September 2016 Hotel Horizons forecast, released through the STR Hotel Data Conference, U.S. hotels will enjoy modest boosts in occupancy that will yield a RevPAR gain of 3.6 percent.
Lodging demand increased by 1.6 percent during the first half of 2016 compared to the first half of 2015. Hotel room supply rose by a mere 1.5 percent, resulting in a 0.1 percent occupancy boost. Although ADR has increased by 3.1 percent so far this year, the previous year showed an increase of 4.1 percent during the same timeframe.
“It has been very interesting dissecting the performance of the U.S. lodging industry during the first half of 2016,” says R. Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research. “On the one hand, we are comforted by the continual growth in accommodated demand. After all, if people stop traveling, nothing else really matters. On the other hand, there continues to be a disconnect between the record occupancy levels and the inability of hoteliers to increase room rates.”
An analysis of ADR growth in all 60 markets covered in Hotel Horizons finds consistency in the relationship between changes in supply and changes in ADR during 2016. The 25 markets estimated to receive a supply increase in excess of 2 percent are expected to also see a 2.2 percent spike in ADR. However, the additional 35 markets are forecast experience a gain of 4.1 percent.
While culinary and utility expenses are declining, other factors are impacting the hotel industry’s profitability. Hotel labor costs grew by 4.6 percent in 2015, a result of a 5.2 percent hike in salaries and wages and a 3 percent rise in employee benefits.
“While hotels are enjoying significant real change in revenues, the realities of hotel expense growth represent a strong headwind against significant gains on the bottom line,” notes John B. Corgel, real estate professor at Cornell University’s School of Hotel Administration and senior advisor to CBRE Hotels’ Americas Research.
