Olympians across several nations shattered records in five events in PyeongChang. Speed was the name of these games, with new bests set ablaze on the bobsled tracks, speed skating rinks and numerous venues in between.
U.S. hoteliers are attuned to record-breaking performances. During 2017, the industry sold more rooms at the highest rates ever to yield the highest revenue per available room (RevPAR).
Odds are that many of you reading this outpaced your own 2017 budgets. Perhaps you scored some record-setting performance on property as well.
U.S. performance was particularly interesting, considering how strongly the year finished. December roared like a lion with a RevPAR increase of 4.6 percent. This was the second-best gain of 2017, after a 5.1 percent jump in March—the result of an Easter calendar shift. December marked the 94th month of consecutive RevPAR growth, which is nearing the streak of 111 consecutive months recorded since the 1990s (Figure 1).
We have demand to thank for this. Hoteliers sold 4.3 percent more beds in December 2017 than they did the previous year, which, again, trailed only March 2017 for the largest year-over-year monthly gain. That usually doesn’t happen this late in a cycle. Nor does this: For the last six months of the year, demand growth in the top 25 markets accelerated.
Numerous demand drivers are fueling performance. Some of the country is still dealing with a “hurricane hangover” post-Irma in Florida and post-Harvey in Houston and much of Texas. An initial wave of displaced residents, and the subsequent rush of contractors sent to rebuild, have buoyed demand in those states. U.S. hotel demand, excluding Florida and Texas, is “only” 3.1 percent compared to the aforementioned 4.3 percent.
Other drivers included a (then) record-setting Dow Jones Industrial Average and low unemployment.
Let’s also give a shout out to Mickey Mouse, as families flocked to both Orlando, with a RevPAR increase of 17.7 percent, and Anaheim, with a RevPAR increase of 6.4 percent in December.
Supply has proved largely muted, with growth in hotel rooms lingering below two percent, which has eased pressure from new entrants in most markets throughout the country. Growth of 1.8 percent for 2017 is now the same as the long-run average dating back to 1989.
The number of newly-constructed rooms decreased in December, down 3.7 percent from 2016. If less rooms are being built, supply will continue to stagnate. If supply continues to stagnate, demand has more room to separate, which means higher occupancies and higher average daily rates (ADRs) and higher RevPARs. The situation is akin to an Olympian facing less competition in the field, which increases his or her likelihood of scoring gold.
This imbalance could create headwinds, as more developers—and the banks financing their developments—seize the moment and put more shovels in the ground.
How it all plays out is anyone’s guess. The good news is that STR has strong forecasting models for supply, demand and other key performance indicators. Join us for our ESTO webinar on Thursday, March 15 to learn more about the 2018 outlook and the factors shaping it.