Signs point to demand slowdown for hotel rooms

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Industry analysts and lodging consultants say they are seeing signs that the period of growing U.S. room demand that began in the wake of the Great Recession seven years ago might be coming to an end, a result of increasing supply and the growing impact of peer-to-peer services such as Airbnb.

Earlier this month, Bloomberg News reported that Bank of America analyst Shaun Kelley, in a note to clients, had downgraded the stocks of Hilton Worldwide and Hyatt Hotels as well as two hotel REITs, Hersha Hospitality Trust and RLJ Lodging Trust. A Bank of America representative last week declined to comment.

Meanwhile, consultant PricewaterhouseCoopers (PwC) predicted last week that U.S. hotel occupancy, which has increased every year since 2010, will remain unchanged this year at 65.5% and will fall to 65% in 2017. And in a separate report released last week, CBRE Hotels (formerly PKF Hospitality) said demand growth slowed in 2015 and will continue to flatten this year.

“As time moves on, we’re going to look back and realize that the third quarter of 2015 was the peak,” said Mark Woodworth, senior managing director at CBRE Hotels.

Scott Berman, principal and U.S. industry leader, hospitality and leisure at PwC, said, “The first quarter was surprisingly and almost remarkably weak, so we’re playing catch-up for the rest of the year in order to meet expectations.”

Indeed, such reports reflected a first quarter in which growth in RevPAR slowed to 2.7% from last year’s 6.3%, according to STR.

Less clear than the results of the slowdown is its cause, particularly the impact of Airbnb’s growth. Bank of America’s Kelley, according to Bloomberg, cited Airbnb and other home-based accommodations as a primary reason room rates are flattening.

That echoes the findings of the American Hotel & Lodging Association (AH&LA), which has been arguing that its hotel-operator members have been hurt by a growing peer-to-peer lodging sector that can undercut hotels because it is not held to the same regulatory standards.

Since late March, the AH&LA has released reports it commissioned from Penn State University on the impact of Airbnb hosts on the lodging sector in Los Angeles, Chicago and Miami.

“In Miami, as in cities around the country, we have seen that Airbnb is unwilling to be transparent with its data and be a partner in creating safe environments for its users and the communities in which it operates,” AH&LA CEO Katherine Lugar said in a statement on May 25. “And now we know why: A growing portion of Airbnb’s revenue comes from commercial landlords using the platform to operate unregulated and often illegal lodging businesses.”

While Berman acknowledges that it is difficult to measure the impact of peer-to-peer lodging on hotel-room demand, he said there was “no doubt” it is affecting hotels in cities such as New York and Miami.

Either way, that sector’s growth could be magnifying what Berman said is the strongest push for new room supply since the recession. While year-over-year U.S. room supply rose 0.9% in 2014 and 1.1% last year, it was up 1.6% in the first quarter of 2016, according to STR. Notably, room supply is up 5% from a year ago in New York and has risen 3.5% in Miami.

Still, with hotel companies remaining cautiously optimistic after releasing first-quarter results, analysts said that some of the early-year demand weakness was attributable to factors outside the lodging sector, including unseasonably warm weather patterns in the Northeast, the strengthening dollar’s impact on inbound visits, a faltering stock market and an early Easter holiday.

Despite signs of a slowdown, no one is projecting a doomsday scenario in the near future. In fact, STR is projecting record summer room demand this year, though the property-level demand increases will be gradual as a result of increased supply.

“What makes this particular episode very different from the last two cycles going back to the 2001 recession and certainly the Great Recession is that we’re at a very high level,” Woodworth said. “For at least the next couple of years, occupancy is going to remain very high.”

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