PwC: Industry Remains Strong; Storms Had Silver Lining for Q3

NATIONAL REPORT—The latest research from PwC’s “Hospitality Directions covering the United States shows nine months into the new administration, the lodging industry and broader economy appear to have shrugged off worries of any initial disruption to the economy. And, interestingly, recovery efforts around the impact from Hurricanes Harvey and Irma boosted lodging industry performance in Q3.

Though initial expectations of broad-based economic stimulus, regulatory reform and tax policy reform have been significantly tempered, underlying macroeconomic conditions, such as consumer spending and employment, remain solid, according to the PwC report.

The analysts noted economists at IHS-Markit anticipate the back-to-back hurricanes in late August and early September (Harvey in Houston and Irma in South Florida) will end up having a negative impact on GDP growth in third quarter. However, PwC anticipates as recovery efforts continue and local and regional economies stabilize, Q4 GDP “will recover meaningfully,” recouping most of the lost output.

From PwC’s perspective, the impact of these storms on the U.S. lodging industry has been initially positive, particularly in areas like Houston where hotels initially filled up with displaced families and teams from FEMA, followed by recovery work crews. Though outperformance in several individual metropolitan areas is typically not enough to sway the performance of the domestic industry as a whole, the report indicated data provided by STR throughout October suggest the recovery after Harvey and Irma has significantly boosted lodging performance not only in the cities directly impacted by the storms, but in the surrounding areas as well.

In addition to these singular events, overall continued strength in consumer spending, supported by rising disposable income, employment and household asset values, continues to act as a tailwind for the lodging industry, according to PwC. Though supply is still an exigent worry for many hoteliers, the report said, its updated lodging forecast anticipates a “resilient demand base, supported by solid macroeconomic fundamentals, and boosted by continued storm recovery efforts through at least the beginning of next year.”

For 2017, PwC anticipates demand to support an increase in occupancy to 65.8% with ADR growth driving a RevPAR increase of 2.6%.

For 2018, economic momentum is expected to remain relatively strong, suggested the research. PwC also anticipates lodging demand will continue to outpace supply next year, albeit barely, resulting in the highest occupancy level since 1981, at 65.9%. ADR growth of 2.2% is expected to continue to outpace inflation, resulting in a RevPAR increase of 2.5%, according to the research.