The U.S. hotel industry just wrapped up its strongest year
on record, according to STR. Wall Street, meanwhile, appears worried.
Full-year occupancy grew 1.7 percent to 65.6 percent, while
average daily rate increased 4.4 percent to $120.01. The absolute values of
both metrics were the highest ever benchmarked by STR.
Performance in the final month of the year, too, showed
positive growth. Occupancy hit 53 percent, a 0.8 percent year-over-year
increase and the highest level ever recorded for a December, which is typically
sleepy. "Yes, that is pretty low," said STR lodging insights senior
vice president Jan Freitag," but between 2000 and 2010, the average was 47
percent, so somehow more travelers were enticed to come out this year."
December's ADR rose 2.4 percent year over year to $115.81.
That modest national ADR increase, though positive, was the lowest of the year
and the lowest December gain since 2010. The month's 3.2 percent revenue per
available room increase was the second lowest rise for any month in 2015. In
both November and December, RevPAR growth among the top 25 markets was worse
than growth in the rest of the United States. Freitag attributed those results
to "lack of group demand in the larger markets and a larger share of
higher-performing independent hotels outside of the large markets."
The Wall Street View
The apparent slowing of both ADR and RevPAR growth puts
hoteliers in a bit of an awkward position, as some analysts and investors are
waiting for the current cycle's bottom to drop out.
During a presentation at the recent Hotel Electronic
Distribution Network Association's winter conference in Miami, Freitag showed
attendees a slide illustrating the "fundamental disconnect" between
Wall Street's and STR's 2016 predictions. STR forecast U.S. RevPAR growth of 5.7
percent, while Wall Street declared that the end is imminent.
Indeed, that shakiness is showing in the market, as the
Baird/STR Hotel Stock Index, comprised of the 20 hotel companies with the
largest market capitalizations on U.S. exchanges, reported a 5.7 percent
decrease from November to December and a 20 percent decrease for the full-year 2015.
"It is fascinating to look back on a record year and
see hotel stocks near their lows," said STR chairman and co-founder Randy
Smith. "STR had projected revenue per available room to hit record levels
this year with a 6.4 percent increase, and it came in just beneath that
projection at 6.3 percent. ... As we enter 2016, STR is again forecasting
another record year for the industry. Obviously the market is concerned about
future growth and earnings, and unfortunately, everyone suffers when they get
the outlook wrong."
PKF Hospitality Research likewise predicts positive hotel
performance for 2016 and 2017. After the release of the firm's December Hotel
Horizons report, senior managing director Mark Woodworth said PKF is unable to
forecast non-economic risks based on international security threats, but "based
on what we do know and feel comfortable forecasting, the probability of an
economic downturn in U.S. hotel industry performance remains remote."
So what's the problem with Wall Street? Freitag ventured a
guess during his HEDNA presentation: "A lot of Wall Street guys live in
New York City," a market that has been underperforming, with a 1.4 percent
drop in RevPAR for the year as of November. Other markets, meanwhile, are
thriving in the current cycle. "To [those people on Wall Street], New York
City is the world."
To illustrate the argument, Freitag removed New York City
results and the also-dismal Houston results and showed an even higher
nationwide RevPAR growth of 7.1 percent for 2015 as of November. In 2016, STR
predicts demand to grow 2.3 percent, outpacing supply growth, 1.5 percent.
In travel buying terms? Hoteliers will continue
to have pricing power in the coming year.