With several of hospitality's biggest players reporting
underwhelming RevPAR growth in the first quarter, the U.S. hotel industry's
inevitable slowdown might finally have arrived.
"We are now nine consecutive years into the up cycle,
and at this point, it's just really hard to keep growth going," said Jan
Freitag, senior vice president of lodging insights for STR. "We're seeing
a slowing in U.S. GDP growth, which is connected to slowing room demand. Couple
that with the fact that we have all these hotels that were built over the last
couple of years opening, supply and demand are now unbalanced, and occupancies
are either not growing or declining.
"The only way to grow RevPAR is to grow ADR [average
daily rate], but with stagnating occupancy, hoteliers are not very comfortable
increasing their rates."
STR's data shows that U.S. occupancy for the first quarter
was flat, while nationwide RevPAR and ADR eked out just over 1% growth over the
Similar metrics were mirrored across Marriott International's
Q1 earnings call, with the group's North American occupancy falling 0.8
percentage points and the company posting relatively modest RevPAR growth of
0.8% in the region. CEO Arne Sorenson cast blame for sluggish performance, in
part, on a confluence of one-off events in the U.S.
North American RevPAR, Sorenson told investors, "was
constrained by the partial federal government shutdown in January, tough
comparisons to hurricane recovery in Florida and Houston and the lingering
impact from the fourth-quarter labor strike in Hawaii."
He added that without those factors, RevPAR would have grown
an additional 0.7%.
Select-service sector stagnates
Marriott's North American RevPAR was also weighed down,
however, by a weak performance from the company's select-service portfolio,
which includes the Courtyard, Residence Inn and Fairfield flags. For those
brands, RevPAR collectively declined 0.3%.
Like Marriott, Hyatt reported a stagnating select-service
sector in its first quarter, which contributed to a systemwide RevPAR decline
of 0.3% in the U.S. for Hyatt Place and Hyatt House.
InterContinental Hotel Group (IHG), which reported a 0.6%
uptick in U.S. RevPAR for the quarter, also addressed investor concerns about a
slowing upper-midscale and limited-service segment.
While IHG's CFO, Paul Edgecliffe-Johnson, emphasized that
upper-midscale demand remains healthy in many markets, he did acknowledge that
the category has been experiencing an extended influx of supply in the segment,
which includes IHG's select-service Holiday Inn and Holiday Inn Express.
"In terms of upper-midscale, [that segment has] the
highest level of investor demand to open up new hotels, because returns there
are stronger for those limited- or select-service hotels,"
Edgecliffe-Johnson told investors earlier this month.
STR's Freitag echoed Edgecliffe-Johnson's comments,
confirming that select-service development has well outpaced development of
other hotel categories in the U.S.
"Seven out of 10 rooms under construction in the
pipeline are limited-service," Freitag said.
No cause for alarm
Despite the threat of oversupply, however, Freitag insisted
that the current slowdown is not cause for alarm, framing the forecast as more
of a soft landing than a steep drop.
"We're still expecting some RevPAR growth, but it's
just not going to be as strong," he said.
"We think that the industry supply growth numbers, even
though they're pretty strong in limited-service, are manageable, as long as
room demand continues to increase at the rate that we're expecting."
Marriott's Sorenson took a similarly even-keeled stance.
"While March was a disappointing month in many
respects, it is not a harbinger of a predictably different environment than one
that we've been going through the last few quarters," Sorenson said. "Thematically,
today, I think we'd say it's steady as she goes for the next few quarters."