HENDERSONVILLE, Tennessee—U.S. results in January were still healthy but the possible impact from the coronavirus looms large and could impact global economic growth and U.S. hotel room demand.
1. January starts 2020 off strong
What a pleasant start to the year. RevPAR increased 2.2%, driven by average daily rate growth of 1.4%, noticeably stronger than January 2019’s 0.8% growth. Occupancy increased 0.8% since demand rose 3%, the strongest monthly demand increase since August 2018. You read that right: January 2020 showed stronger demand growth than any month in 2019.
The truth is that the January data set maybe the last “normal” data for a while. The coronavirus (COVID-19) outbreak was first reported on 31 December in China, and news started to really hit around the Chinese New Year (25 January). With travel in and out of China basically at a standstill, the impact will be massive, but it’s still too early to be quantified. Our weekly data for China and the Asia/Pacific region tells a story of significant declines in demand and occupancy. Knock-on effects are visible such as the cancellation of the Mobile World Congress in Barcelona. Our friends at HNN have created a landing page for all coronavirus-related news.
Back to the U.S. numbers: Results were lifted by pre-Super Bowl shindigs in Miami which had a 50-basis-point impact on the national numbers. That’s what happens when you add a major event to an already strong high season in a market.
• MORE: Miami hotels outperform expectations during Super Bowl
Source: STR, © 2020 CoStar Realty Information, Inc.
2. Segmentation data
Heathy segmentation results lifted the higher U.S. class data. The usual pattern of higher group ADR than transient ADR growth persisted.
Group occupancy declined, but any decline that is better than a 1.8% decrease basically means that demand increased, because supply is up 1.8% for the sample set. The group ADR increase is a bit stronger than the 2019 data (+2.3%) and basically equal with January 2019 (+3.1%). Transient ADR growth was exactly the same as in last year January.
The room count segmentation analysis shows basically all hotels with over 500 rooms did well in pushing ADR, but this data is likely also skewed up by the Miami outperformance.
3. Pipeline data
Total rooms in construction grew by 6.8%, now clocking in at 209,000, just 2,000 rooms below the prior peak from over 12 years ago.
Planning and final planning continue to gyrate, but as always the monthly changes are skewed by a few projects that have moved, and large swings are not a sign of anything. The total pipeline continues to grow, but at a measured clip.
Basically the average new hotel in the U.S. is limited service (70% of construction), and in a top 26 metro market (46% of construction).
Source: STR, © 2020 CoStar Realty Information, Inc.
Quick note on Las Vegas: Of the 14,000 U.S. luxury rooms in construction, 3,800 (about 27%) are in Vegas at the JW/Edition complex that used to be Fontainebleau, now The Drew.
Source: STR, © 2020 CoStar Realty Information, Inc.
So, whereas everybody and their brother is building no ballrooms, no restaurants and small guestrooms, developers in Las Vegas are doubling down, pardon the pun, and going luxury or bust. And the unaffiliated project here is also not economy class. Hilton said recently that the Genting Resort World will be LXR- and Conrad-affiliated, so we will move them to luxury class, which means that basically half the total U.S. luxury pipeline rooms will be in Vegas.
4. Top 25 markets
It was a good month for the larger markets. Demand increased 4.8%, 15 of the top 25 saw demand growth of over 5%. RevPAR increased 3.2%, 100 basis points over the national average. This is only the second month in the last 12 that the larger markets outperformed the U.S.
Source: STR, © 2020 CoStar Realty Information, Inc.
Obviously supply in those markets is also growing faster (+2.6%) so it’s nice to see that occupancies can still grow.
The same cannot be said for the “all other markets.” Half of the rooms were empty outside of the top 25, and occupancy change was 0%. Pricing was actually a little bit stronger in those other markets, but 1.4% is only strong in relative terms, not absolute.
5. The impact of 2020 calendar shifts
As we had talked about late last year, the convention calendar will make some of the top 25 markets smell like roses this year, and it is possible that we will see a few months of outperformance of because of this. The 2020 holiday calendar is also a positive for meeting planners, since a lot of the holidays are moving to the weekends, leaving the weeks open for meetings. That said, I am always cautious to put too much stock into the calendar as the salvation to all that ails the industry since a better calendar does not create demand, it merely shifts it. What it could actually mean is that there will be fewer compression nights since meeting planners had more choices when they looked at the 2020 calendar and were able to spread meetings out.
Speaking of compression, we will update this new chart each month that counts the compression nights (occupancy at or over 95% by market) across the U.S., so the sample size is basically 30 days multiplied by 168 markets, which equals 5,040 possible opportunities to sell out. For comparison, we added 2018 and 2019.
Source: STR, © 2020 CoStar Realty Information, Inc.
More to come, but for pricing power to happen, compression nights need to happen. But as you can clearly see, other than November and December, the 2019 count was lower than the 2018 count. That said, January was up over those last two years, so we will see how 2020 develops.
Jan Freitag is the SVP of lodging insights at STR.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.
