The United States hotel industry enjoyed another month of strong performance during October. Here are five things to know about the data from STR, parent company of Hotel News Now.
1. Room demand continues to grow
In October, room demand grew by 6.3%. So, there you go. Not sure what else to say. I am running out of superlatives. I have used the arsenal of “amazing, great, unprecedented,” etc., so you get my drift.
This growth is the largest since December 2010, and remember that the 2010 data showed rebounds post-recession and not actually good absolute performance. The industry sold 104 million roomnights, something that has never happened in October. We broke the 100-million mark the fifth time this year—again unprecedented. Selling 100 million-plus roomnights in June, July and August has happened in 2012 and 2013, but this year we also did this in May and now in October.
2. Occupancy was up, helping pricing power
Occupancy for the month was up 5.3% to 68%. Since March, occupancy has been over 65%. Last time we recorded these numbers was in the mid-90s, but remember we had 390 million fewer roomnights available back then.
With occupancy on that level, pricing power for hoteliers continues. Average daily rate was up 4.6% to $118. This increase is the strongest of any October since 2009.
3. RevPAR was the strongest of any October
Combining all this gives you another record: Revenue-per-available-room growth topped 10% (+10.1%), the strongest performance of any October ever. The hotel industry has now recorded 50 months (on a 12-month-moving-average basis) of positive RevPAR growth, and it looks like the run will continue. That said, historically, occupancies have been below 60% in November and December. Thus, it is probably fair to assume that the unprecedented pace of growth will slow. We will set records; it’s just we enter the slower season of the year, and the data will show it.
Additionally, RevPAR for the 10 months was up 8.4%, the strongest ever recorded for that time frame. It is worth noting that the over the last three months, the average growth rate is 9.7%. Over the last six months, the combined growth rate is 9.2%. So, no signs of slowing growth. But that said, the only rational thing to assume that is the party will continue until April 2015 (growth through April 2014: +6.9%), and then the tougher comps will start.
4. Annualized demand growth for group rooms is strong
On the upper end, the industry sold more transient rooms than ever (135 million) and now finally more group rooms (73.8 million) than in 2008 (72.7 million). The annualized demand growth rate for group rooms is 4.3%, the strongest growth rate since January 2012. To me, this is the most important indicator that the upturn can be sustained.
5. Majority of top markets performing well
Just as RevPAR growth on the lower scales has more room to grow since the occupancies are lower, so do the markets outside of the top 25 markets outperform the top 25.
So, we recorded top 25 market RevPAR growth at 9.3% for the month but +10.7% for all other markets. This is the result of very different occupancy growth rates: top 25: +4.5%; all others: +5.7%.
Expect this pattern to continue, but it should not be alarming because the absolute occupancy level of the top 25 is 75.7%—basically full house across the board. Only four of the top 25 markets recorded an occupancy of less than 70%.
Bonus
Given all this, we released our new forecast for the rest of this year and for 2015:
As you can see, 2014 is the high water mark of growth, and from now on supply increases and slower demand growth will take their toll. ADR growth is the name of the game.
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