PwC: Lodging Outlook Remains Positive Despite Slowing Growth

NEW YORK—An upbeat economic outlook supports continued, albeit decelerating, growth for the U.S. lodging industry, according to the latest update from PwC.

Encouraged by the prospect of a strengthening economy, U.S. lodging performance continued to improve in Q1, the company noted in its just-released Hospitality Directions report. Despite a weak first quarter GDP growth estimate of 0.7%, lodging demand increased at the strongest quarterly rate since the first quarter of 2015, supporting modest growth in both occupancy and average daily rate. Overall, RevPAR increased 3.4%. according to PwC.

Reinforced by rising employment, higher real income and increased household net worth, consumer confidence and sentiment remain elevated. However, economists at IHS-Markit anticipate the Trump administration will attempt a more modest agenda this year than initially suggested, which may impact previous expectations for significant tax and regulatory reform this year.

For the remainder of 2017, U.S. lodging performance is anticipated to temper, as peaking supply growth is expected to place increased pressure on pricing power.

The majority of the economic policy changes proposed by the Trump administration, including a reduction in the personal and corporate tax rates and changes to banking industry regulations, are unlikely to take effect until at least 2018.

Economists with IHS-Markit anticipate consumer spending will be a key driver of economic growth in 2018 and beyond. The U.S. dollar, which has been in a prolonged period of strength, is expected to peak in Q1 2018, though the subsequent decline (and its commensurate impact on consumer spending) may have mixed results for the lodging industry, according to PwC.

Domestic consumer spending on lodging may decrease, as consumers find prices for imported goods increasing and cut back on discretionary spending. However, the weakening currency may help bolster inbound international demand, which has been adversely affected by the strong U.S. dollar and the Trump administration’s public position regarding the border adjustment tax, visa program changes and travel restrictions, observed PwC.

Overall, a shift in the supply-demand balance in 2018 is anticipated to result in the first annual decline in occupancy, albeit minor, since 2009. ADR growth of 2.2% is expected to drive an increase in RevPAR of 2%, the slowest growth rate in nine years, reported PwC.