New Projections Forecast a Slight Slowdown for the U.S. Hotel Industry in 2019-2020

It appears the red-hot seller's market, which the hotel industry has been enjoying for a number of consecutive years, is cooling off by a notch. And that might be just enough to give meeting planners some wiggle room in certain markets. At the Americas Lodging Investment Summit, which was held last week in Los Angeles, STR and Tourism Economics together released their latest forecast for the U.S. hotel industry, which predicts a slowdown in performance growth for 2019 and 2020, a first since 2009.

"Late in 2018, growth in revenue per available room weakened as strong demand was offset by lower-than-expected growth in average daily rate," said Amanda Hite, STR's president and chief executive officer. "Now, demand is softening, and although supply growth is stabilized, we expect our first year without an increase in occupancy since 2009. "
Hide said subdued pricing confidence and concerns over labor costs by hotels, combined with a cooling economic environment and the negative sentiment brought on by the recent government shutdown, was a recipe for a decrease in RevPAR growth. "Performance growth of any rate will still take the industry to another record-breaking level nationally, but plenty of individual markets and hotels are feeling the slowdown on their bottom line," said Hide.
For 2019, the U.S. hotel industry is projected to report flat occupancy at 66.2 percent, a 2.3 percent rise in ADR to $132.81 and a 2.3 percent increase in RevPAR to $87.94 -- the latter down from the 2.9 percent growth enjoyed in 2018 and 2017.
While the midscale segment is likely to report the only increase in occupancy, the luxury segment is expected to post the highest increase in rates, and the lowest rate of RevPAR growth is projected in the upper-midscale segment, at less than 2 percent.
Looking ahead to 2020, STR and Tourism Economics forecast that the U.S. hotel industry will see its first decrease in occupancy since 2009, dipping to an average of 66.1 percent. Meanwhile, ADR will get another 2.2 percent bump to $135.68 and RevPAR will increase another near 2 percent to $89.65, with the highest overall rate once again expected in the luxury segment.
Speaking with Northstar Meetings Group after ALIS wrapped up, Hite said there were several key markets that planners should be watching. Among them is San Francisco, where the opening of the Moscone Center's expansion will keep occupancy levels high as pent-up group demand returns to the city.
"In New York City, continued strong demand growth will likely absorb new supply growth and keep occupancy levels high," said Hite. "Houston, however, has a challenging situation, as it has seen an influx of new supply, but with oil prices depressed, room demand is sluggish."
The bottom line for placing group business? There is moderate supply growth in the luxury segment, so expect high occupancies and and even higher rates. "As long as GDP growth holds, then group demand should increase, helping high-end hotels," said Hite. "The question is whether or not group ADR continues to increase at the rate that we have seen."