Occupancies Will Go Up for a Fifth Straight Year of Record Levels in 2019, but RevPAR will be at Its Lowest Rate of Growth in Nine Years

Occupancies Will Go Up for a Fifth Straight Year of Record Levels in 2019, but RevPAR will be at Its Lowest Rate of Growth in Nine Years

The demand for hotel rooms in the United States will continue to remain healthy next year, with occupancies flourishing at record levels, but there will be various factors putting pressure on rate growth in 2019, industry experts predicted.

"The industry has had great record numbers, but I do have some areas of concern," noted R. Mark Woodworth, senior managing director of CBRE Hotels Americas Research.

On the plus side, the nation’s hotels will enjoy a 10th consecutive year of growth in 2019, with occupancy rising to 66.2 percent, according to the December 2018 edition of CBRE's Hotel Horizons®.

While lodging demand for the entire U.S. market is forecast to increase by 2.1 percent in 2019, the demand for accommodations in the 60 markets covered by CBRE is projected to grow by a strong 3.3 percent, according to the report. This is significant, because the majority of hotel investment activity occurs in the nation’s largest cities. Supply growth in the 60 market Hotel Horizons® universe (3.6 percent) is forecast to be almost double that of the nation as whole (1.9 percent).

R. Mark Woodworth

But, U.S. hotel RevPAR is expected to rise by just 2.7 percent in 2019 - which is the lowest rate of growth since the recovery began in 2010.

Factors such as increased supply, low inflation, the sharing economy and rate transparency make it more difficult to raise rates, said Robert Rauch, chief executive officer and founder of RAR Hospitality. Other challenges include the lack of buying opportunities available, as sellers are not motivated to sell.

Non-traditional competitors like Airbnb and online intermediaries, which "take a piece of the pie," will continue to impact stronger levels of ADR growth, Woodworth predicted. In addition, the high cost of labor - which can literally be half of the expenses involved with running a hotel - will still be an issue next year.

"We are going to see some hotel managers cutting back on service levels where they can, because of labor costs and labor becoming scarce in some markets," Woodworth said. "For instance, if a guest is staying for two nights, a hotel may offer that person a drink coupon or extra rewards points if that traveler agrees not to have the room cleaned for one night."

The advent of these online intermediaries has dramatically changed the way guests book rooms, and hoteliers need to increase efforts next year to convince travelers to book directly with them, noted Mark Lomanno, partner in Kalibri Labs, a hotel big data company. Three years ago, 35 percent of bookings were made directly to a property; that number is now down to 28 percent, he said. If a hotel room costs $100 a night, the hotel will only receive about $85 of that when a reservation is made through certain intermediaries.

"At our hotels, we try to incentivize our guests and say to them that if they book directly we will give them the best rate," Rauch said. "I also send out a newsletter to all of our guests at our properties who are in our loyalty program."

Rauch predicted that in 2019 the upscale segment - particularly the upscale independent hotels that are more unique - would be most likely to raise rates within all of the various lodging segments.

Some of the strongest lodging markets of the country markets forecast by CBRE to enjoy 4.4 percent or more ADR growth in 2019 include Jacksonville, Fla.; San Jose-Santa Cruz, Calif.; San Francisco; Newark, N.J.; and Atlanta. These markets have had below-average level of supply increases, Woodworth noted. Conversely, markets like Charleston, S.C.; Charlotte, N.C.; Minneapolis; Savannah, Ga.; and Portland, Ore. will be hard pressed to raise rates by too much because of larger supply increases.

National Forecast Summary

Year Occupancy (%) ADR ($) RevPAR ($)
2017 65.9 126.70 83.49
2018 66.1 129.90 85.83
2019 66.2 133.15 88.11

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