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U.S. Hotel Revenue Growth Driven by Overlooked Sources in Lower Chain Scales and Secondary Markets
CBRE Hotels’ Americas Research Forecasts 2.2 Percent RevPAR Compound Annual Growth Rate Through 2021
U.S. hotels enjoyed another year of life at the performance peak in 2016 and are forecast to continue to live the high life in 2017. According to the recently released March 2017 Hotel Horizons®forecast report from CBRE Hotels’ Americas Research, rooms revenue (RevPAR) grew for a seventh consecutive year in 2016, and the prospects for RevPAR growth are projected to be solid for the foreseeable future. Whilst many have felt the reward of this sustained growth, there remains a high number of hotels that are struggling to turn a profit. Hotels in that position may benefit from cutting expenses and using an energy comparison site like Simply Switch to avoid paying excessively on bills. What is surprising, however, is the impetus for sustained revenue expansion comes from some unexpected sources.
“The hotel business is cyclical. The upper-priced properties led the U.S. lodging industry out of the recession and have continued to achieve occupancy levels in excess of 70 percent. However, recently it has been the lower-priced properties that have shown the greatest gains in RevPAR,” said R. Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research. “In the past five years, RevPAR for U.S. hotels increased at compound annual rate (CAGR) of 5.7 percent. The only chain-scale close to achieving this pace of revenue growth was the economy segment whose average annual RevPAR increase was 5.6 percent during this period. That means independent and economy chain-affiliated properties have been the primary drivers of the industry’s recent strong performance.”
Looking forward, this trend is expected to continue. From 2017 through 2021, CBRE Hotels’ Americas Research is projecting that the U.S. lodging industry will achieve a RevPAR compound annual growth rate (CAGR) of 2.2 percent. During this period, the RevPAR CAGR is projected to be 2.8 percent for the economy chain-scale. “We recognize that economy properties still achieve the lowest levels of occupancy and ADR, but investors looking for a ‘growth story’ shouldn’t overlook this segment of the industry while some of the other chain-scale categories begin to stall out,” said Woodworth.
In addition to lower-priced hotels, small markets also are enjoying significant RevPAR increases. In 2016, RevPAR growth for the 60 markets covered by CBRE’s Hotel Horizons® forecast reports averaged 2.8 percent. This is below the aggregate 3.6 percent RevPAR growth achieved by hotels located outside of the 60 markets. The gap in performance is expected to widen in 2017 when Horizons® universe is forecast to see RevPAR increase by 2.0 percent. Concurrently, the remaining markets are projected to achieve a 3.8 percent increase in RevPAR during the year.
“So much attention is being paid to the major urban and gateway markets,” said John B. (Jack) Corgel, Ph.D., professor of real estate at the Cornell University School of Hotel Administration and senior advisor to CBRE Hotels’ Americas Research. “Over three quarters of the new hotel rooms forecast by CBRE to enter the U.S. lodging industry in 2017 will be located in the 60 major markets we track, even though these markets represent just 48 percent of the overall national hotel inventory. The increased competition in major markets certainly helps explain why these markets have recently lagged in RevPAR growth and are expected to continue to suffer in the near term.”
Not Top of Mind
“When you read the hotel trade journals there is a growing sense of skepticism among industry analysts and attendees at the major industry conferences. I attribute this to the large sums of public company money that have been invested in upper-priced properties located in major markets,” Corgel noted. “Economy and independent hotels, as well as the secondary markets, are left off the agenda, so they are they are not top-of-mind.”
“The fact is that U.S. hotels are achieving all-time record occupancy levels and near record profit margins. A lot of money is being made from hotel operations these days. While the prospects for growth in revenues and profits are moderating, opportunities still exist. Companies should be investing in search engine optimization for hotels in order to beat their competition. Investors just need to investigate some of the historically overlooked chain-scale and geographical segments to find better returns,” Woodworth concluded.
To purchase copies of the March 2017 editions of Hotel Horizons®for the U.S. lodging industry and 60 major markets, please visit: https://pip.cbrehotels.com
CBRE Hotels is a specialized advisory group within CBRE providing capital markets, consulting, investment sales, research and valuation services to companies in the hotel sector. CBRE Hotels is comprised of more than 385 dedicated hospitality professionals located in 60 offices across the globe.
Source: U.S. Hotel Revenue Grows