ATLANTA—The 2017 outlook for U.S. hotels offers mixed blessings, with near-record occupancy levels projected while ADR is expected to continue leveling off.
According to the recently released December 2016 Hotel Horizons forecast report, CBRE Hotels’ Americas Research is projecting that the U.S. lodging industry will achieve an annual occupancy rate of 65.3% in 2017, just shy of the 65.4% all-time record occupancy level expected for 2016.
“Conventional wisdom says that at such high occupancy levels, hoteliers should have the leverage to implement strong price increases,” said R. Mark Woodworth, senior managing director at CBRE Hotels’ Americas Research. “However, like for much of 2016, you need to throw conventional wisdom out the window.”
Despite the lofty occupancy levels, CBRE is forecasting a national ADR increase of 3.3% in 2017. While this represents a real ADR change of 1.7%, the pace of ADR growth has been falling since 2014 and is expected to continue to weaken through 2019.
CBRE attributes the overall sluggishness in ADR growth to a combination of factors, some of which are new to the U.S. lodging industry: In an effort to draw business from third-party intermediaries, the major brands are aggressively promoting consumers to book direct on the chain’s website with guaranteed “best available rates;” increased competition from the sharing economy; and weekend leisure travelers now comprise a larger portion of total lodging demand—these guests tend to be more price-sensitive.
While the prospect for raising room rates may be disappointing for hotel owners and operators, the outlook for lodging demand growth is positive. “If you look at the recent economic indicators, you see increases in retail sales, auto sales, building materials, and health and beauty products,” said John B. (Jack) Corgel, senior advisor to CBRE Hotels’ Americas Research. “In short, people are spending on themselves, and that bodes well for travel.”
As the economy improves and unemployment levels drop, hotel managers will continue to struggle to control their largest operating expense—labor costs. “In recent years, hotel managers have had to deal with rising salaries, wages and benefits, as well as increased staffing levels needed to serve the record levels of occupancy—a trend we do not see dissipating in the near future,” Woodworth noted. “Further, inflation, while still relatively low, is most likely on an upward trajectory. Eventually, this will impact the other goods and services purchased by hotels.”
Slight declines in occupancy, combined with minimal real gains in ADR, is the pattern CBRE foresees through 2020. “Lodging is a cyclical business, and we continue to see U.S. hotels sit on top of the peak of the cycle after recovering from the Great Recession. We are encouraged by the positive outlook for lodging demand and resulting high levels of occupancy. While flat performance sounds disappointing, the strong underpinnings supporting continued growth in travel will prevent an outright fall from the peak,” Woodworth concluded.