Economy Watch: Hotel Metrics Stabilize in 3Q

While the U.S. lodging sector has done well in recent years, there's some evidence the industry is beginning to plateau, a new JLL report notes.

031912-Hotel-Key-Cards-user-Wonderdawg777The U.S. hotel sector has done particularly well in recent years, but there’s some evidence that the industry is beginning to skate along a plateau. According to JLL’s third-quarter lodging outlook report, hotel RevPAR was up 3.2 percent year-to-date compared with the same period a year ago, which is certainly better than no growth. But a year ago, the RevPAR growth rate was a brisker 6.7 percent year-to-date compared with the same period in 2014.

JLL also noted that occupancy growth has stalled as room demand has experienced downward pressure from more cautious corporate transient demand and a slight uptick in group cancellations in the short term, coupled with increasing supply. “Despite these headwinds, the national occupancy rate continues to hover at a historic high, and ADR gains are driving the entirety of RevPAR growth,” the report said. Year-to-date ADR growth at the end of the third quarter was 3.2 percent.

Investors remain interested in the sector. Total hotel property sales volume amounted to $10.5 billion for the quarter, compared to $5.6 billion for the second quarter, though the expansion was largely driven by the purchase of Strategic Hotels & Resorts. While annual sales activity has declined relative to last year’s trading volume, the current level of quarterly transactions suggests that liquidity exists for high-quality assets in primary markets or secondary markets, the report posited.

As for supply, about 70 percent of hotels under construction are select-service hotels. The increasing supply in this segment may place downward pressure on existing select-service hotel occupancy, but even so, a recent JLL select-service investor survey found that over two-thirds of investors expect the select-service market to post positive RevPAR growth next year.