Economy Watch: The Amazing Expanding Hospitality Market

The industry is clearly on track to have its best year in living memory.

The most recent recession hit the hospitality industry pretty hard, with all of its important metrics shrinking like a leaky balloon for a few years. But that’s all in the past now. The industry is clearly on track to have its best year in living memory. According to hospitality specialists STR, U.S. hospitality occupancy increased 1.2 percent year-over-year to 62.3 percent for the last week of October. ADR (average daily rate) was up 5.1 percent to $120.46, and RevPAR (revenue per available room, a key metric) increased 6.4 percent for the year to $75.06.

Naturally, developers have responded to the demand with product in the pipeline, and a lot of it is coming online next year. STR forecasts supply to grow 1.4 percent in 2016, while PricewaterhouseCoopers is predicting 2 percent supply growth for the year, and PKF-HR anticipates 1.8 percent supply growth. The impact of the growth on the market isn’t clear yet. One school of thinking is that demand will keep up in non-upscale sectors at least, since much of the new product is upscale (PwC predicts that that segment will grow 5.7 percent next year, with upper-midscale properties growing 3.5 percent). But if demand doesn’t keep up, there will be downward pressure on rates for the first time in some years.

Specific hospitality markets are also prospering. Las Vegas, one of the nation’s top hotel markets, definitely took a beating in the late 2000s, but now it’s back on top. A key metric for the market is the number of visitors it receives each year, and by 2014 the Las Vegas Convention and Visitors Authority noted, visitor traffic recovered to a new record high. In September 2015, visitor traffic was 6 percent above the same month 2014, so another record year is a distinct possibility. Also, Las Vegas hotel occupancy year-over-year was up 4 percent in September, and RevPAR gained 13.9 percent. Room inventory was down 0.9 percent. So it’s a good time to own a hotel in Vegas.

Data from a completely different market, but also one that draws a lot of visitors – greater New Orleans – also hammers home the recovery of the industry. In the case of New Orleans, not only did the market have to deal with the recession, but also the long, painful aftermath of 2005’s Hurricane Katrina. Now, more than 10 years after the disaster, the market has achieved a major milestone: according to the Greater New Orleans Hotel and Lodging Association and STR, there are 38,243 hotel rooms in the Greater New Orleans area, finally surpassing the pre-Katrina number, which was 38,117. Current average occupancy for the New Orleans hotel market is well above the national average, at about 73 percent.