REPORT FROM THE U.S.—Room supply is growing at an accelerating pace in the U.S. Whereas at the end of 2014, the change in number of rooms was just +0.7% and at the end of 2015 +0.9%, the supply percent change through August this year was already at +1.5%. In August alone, the change was +1.7%, so the monthly change is higher than the year-to-date change, and since we expect this to persist, the year-to-date data will climb.
Some of the analysts point out that percent change numbers are misleading since the change is calculated off a different basis each month. And indeed, the small growth rates over the last few years mask the fact that the absolute number of rooms available has never been higher. In 2015 the industry had more than 1.8 billion room nights available, and we expect that number to grow.
For perspective, we thought it would be illuminating to show what a 1.5% supply change looked like in absolute figures, given different times in history. The table below shows the month when the change was +1.5% (so technically between +1.45% and +1.54%) and difference in absolute rooms available, sorted by the net rooms difference, lowest to highest.
What is worth noting is that the high and low absolute values differ by 880,000 rooms. In other words, in November 1994, a change of 1.5 million rooms available equated to a supply growth of +1.5%; in July of this year a change of 2.4 million rooms resulted in the same percent change.
Arithmetic dictates that for the industrywide occupancy change to be unaffected, demand needs to increase by the same amount of +1.5%. But in absolute terms, it means the industry had to sell 880,000 more rooms this year than in 1994 just keep the industry’s occupancy at the same level. Since 2016 marks the year when STR recorded new occupancy records, this is indeed what happened. In future quarters, the change in rooms demand is expected to increase further but not enough to make up for the more drastic changes in supply growth. In other words, we expect occupancy to decline in the coming years.
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