Economy Watch: Hotel Metrics Stabilize in 3Q

By Dees Stribling, Contributing Editor

The U.S. hotel sector has done particularly well in recent years, but there’s some evidence that the industry is beginning to skate along a plateau. According to JLL’s third-quarter lodging outlook report, hotel RevPAR was up 3.2 percent year-to-date compared with the same period a year ago, which is certainly better than no growth. But a year ago, the RevPAR growth rate was a brisker 6.7 percent year-to-date compared with the same period in 2014.

JLL also noted that occupancy growth has stalled as room demand has experienced downward pressure from more cautious corporate transient demand and a slight uptick in group cancellations in the short term, coupled with increasing supply. “Despite these headwinds, the national occupancy rate continues to hover at a historic high, and ADR gains are driving the entirety of RevPAR growth,” the report said. Year-to-date ADR growth at the end of the third quarter was 3.2 percent.

Investors remain interested in the sector. Total hotel property sales volume amounted to $10.5 billion for the quarter, compared to $5.6 billion for the second quarter, though the expansion was largely driven by the purchase of Strategic Hotels & Resorts. While annual sales activity has declined relative to last year’s trading volume, the current level of quarterly transactions suggests that liquidity exists for high-quality assets in primary markets or secondary markets, the report posited.

As for supply, about 70 percent of hotels under construction are select-service hotels. The increasing supply in this segment may place downward pressure on existing select-service hotel occupancy, but even so, a recent JLL select-service investor survey found that over two-thirds of investors expect the select-service market to post positive RevPAR growth next year.