US Hotel Industry's Growth Forecast to Slow After Weak 2019 First Quarter

STR and Tourism Economics has downgraded its RevPAR (revenue per available room) growth forecast for the U.S. hotel industry following an unexpectedly challenging first quarter.

The adjusted growth projection of 2 percent to $87.65 for 2019 is down from the 2.3 percent growth expected back in February.

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"The first quarter of the year came in worse than forecasted on the ADR side, and while the indicators point to better performance the remainder of this year we lowered our RevPAR projection 30 basis points mostly as a result of Q1 performance," said Amanda Hite, STR’s president and CEO, in a statement.

"The good news is that we continue to set monthly demand records and occupancy has been a bit better than expected. Economic momentum is slowing but consumer confidence and a low unemployment rate should aid more meaningful performance growth as we get into the busy summer months," Hite added. "Forward-looking U.S. air travel bookings remain steady and vacation intentions are on the upswing compared to the two previous years."

New York City and Chicago were among the major markets that saw notable declines in RevPAR during the year's opening quarter, with weak group bookings and an oversupply of hotel rooms among the potential factors.

"The quarter was a bit weaker in group than we came into the year expecting. But it turns out that it was really driven by just two specific dynamics. The first is Chicago. We have our largest percentage of convention hotel inventory here in Chicago and Chicago had a very weak first quarter," Hyatt Hotels Corporation president and CEO Mark Hoplamazian said during the company's Q1 earnings call last month. "The overall Central Business District in Chicago as a market was down over 11 percent and that was primarily driven by citywide volumes that were off materially from last year."

Looking ahead to the remainder of 2019, STR and Tourism Economics project the U.S. hotel industry to experience a 0.1 percent increase in occupancy to 66.2 percent and a 1.9 percent jump in average daily rate (ADR) to $132.32.

"Moving forward, we’re monitoring the development pipeline—even though supply growth has been gradual on a national level, we’ve already seen the impact of new inventory in major markets and the select-service segments, and construction activity has been up for seven straight months overall," said Hite. "Additionally, labor costs have outgrown revenue for two consecutive years, which is placing more pressure on already shrinking profit margins."

STR and Tourism Economics' 2020 forecast remains mostly unchanged with occupancy expected to decrease 0.2 percent to 66.1 percent; ADR projected to climb 2.2 percent to $135.17 and RevPAR expected to rise 1.9 percent to $89.36.

The U.S. hasn't experienced a year over year decline in occupancy since last decade.