Is the US Hotel Market About to Hit a Wall?

A mid-year report from Cushman & Wakefield reveals that while performance remains strong, there may be clouds on the horizon.
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The U.S. hotel market has continued to post strong revenue numbers since the beginning of the post-recession recovery cycle in 2010, but a new mid-year report from Cushman & Wakefield has revealed that the good times may not last.

In the brokerage firm’s Mid-Year 2019 report on the U.S. hotel industry, Cushman & Wakefield found that the number of hotel rooms being built is still increasing and the supply is expected to expand by nearly 2 percent in 2019 and 2020. RevPAR is also expected to increase by 2 percent in 2019 and 1.9 percent in 2020. While these are positive numbers, historically, when demand growth trends below supply, RevPAR often declines too—sometimes at a greater rate.

“The hotel business is a mirror of the greater economic environment as opposed to a stimulant, which results in owners and operators tending to be more reactive to trend,” the firm wrote in the report.

Fears of a cooling in the market are not new—in a report released last month by CBRE, the brokerage firm predicted a slowdown in demand for hotel rooms in the U.S. through 2020 and a dimmer forecast for RevPAR. CBRE cited an expected downturn in the U.S. economy as the catalyst.

Market performance

On a year-over-year basis, the U.S. hotel market continued to show record gains in revenue, a trend for nearly a decade, Cushman & Wakefield reported. However, that revenue growth is slowing. The report pointed to challenges to the market including less business travel, weather-related issues and the absorption of new supply. Demand has consistently outpaced supply for the last nine years, but the second quarter numbers show a shift in that trend that has resulted in a modest decline in occupancy and a slowdown in RevPAR growth.

The top 25 areas within the U.S. that have traditionally been the strongest hotel markets have continued to dominate. New York, Oahu and San Francisco all continue to have high average rates and occupancies, while 17 of the top 25 markets brought in average rates above the national average hotel rate, which is $130.60.

Despite the likely possibility of a dip in the market, Cushman & Wakefield noted in the report that unlike previous cycles, players in the hotel market have managed their expectations for a possible downturn and are confident that hotel investment can stay steady during a decline, as well as do well in a recovery period.