Economy Watch: Hotels Enjoy a Bang-Up First Quarter

Hotel occupancy, average daily rate and revenue per available room all gained ground in the first quarter of 2017, STR recently reported, but an increase in development for the quarter could put pressure on pricing power.

hotel stock photoThe U.S. hotel industry enjoyed positive year-over-year gains in three key metrics during the first quarter of 2017, according to data released by STR late last week. Compared with first-quarter 2016, occupancies were up 0.9 percentage points to 61.1 percent, and average daily rate (ADR) gained 2.5 percent to $124.27. Revenue per available room (RevPAR) was up 3.4 percent to $75.92.

On the other hand, the pace of hotel development might mean that future increases won’t be so robust. “Supply growth for the quarter was 1.9 percent, which was the highest for any quarter since the second quarter of 2010,” said Bobby Bowers, STR’s senior vice president of operations. “So as demand growth becomes more moderate, occupancy will decline, placing further pressure on pricing power.”

Among the top 25 U.S. markets, Washington, D.C.-Maryland-Virginia saw the quarter’s only double-digit increase in RevPAR (up 16.1 percent to $107.93), according to STR. Growth was driven primarily by the only double-digit lift year-over-year in ADR (up 13.6 percent to $165.94). Occupancy growth in the market was more moderate (up 2.2 percentage points to 65 percent). The inauguration, along with frequent protests in D.C., likely contributed to the upward bumps in ADR and RevPAR in that market.

Other top RevPAR increases were reported in Detroit (up 9.8 percent to $63.20); Seattle (up 9.2 percent to $96.62); and New Orleans (up 8 percent to $118.90). Miami/Hialeah experienced the steepest decline in RevPAR compared with last year (down 8.5 percent to $186.36) thanks to the largest drop in ADR (down 7.5 percent to $227.37). New hotel rooms in the market are putting pressure on those metrics.