Continued favorable economic fundamentals are expected to lead to U.S. hotel rooms revenue per available room (RevPAR) growth of 2.5 percent in 2019 and 2.0 percent in 2020, according to the latest forecast from CBRE Hotels Americas Research.
“Supply, demand and pricing in the U.S. lodging industry are very similar to what we have observed the past few years,” said R. Mark Woodworth, senior managing director of CBRE Hotels Americas Research. “For the most part, we expect the supply of hotel rooms entering the market to be absorbed by newly generated demand buoyed by a healthy economy. Further, while the nominal rate of change will be modest, we are projecting average daily rate (ADR) growth above the pace of inflation for 2019 and 2020.”
Hotel demand is strongly correlated with GDP growth. With economic activity in the U.S. expected to slow in the next two years, CBRE Hotels Americas Research is projecting RevPar to decline slightly (0.6 percent) in 2021 before recovering (up 1.4 percent) in 2022. RevPAR is expected to decline across all chain-scales during the slowdown, including Minneapolis, but some will be impacted more than others.
According to Mark Eble, Managing Director and Midwest Practice Leader for CBRE Hotels Advisory, “In line with national trends, in 2019 and 2020 the Minneapolis lodging industry is expected to continue the patterns of the last three years. However, with Minneapolis city-wide supply growth forecasted to slightly exceed growth in demand, RevPAR growth for the overall market is estimated to slow somewhat, from the annual rate of 2.8 percent achieved over the last three years, to 1.7 percent over the next two years.”
CBRE Hotels Americas Research expects the 2021 RevPAR decline for the bottom three chain-scales, the most sensitive to changes in employment, to average 1.3 percent. Meanwhile, CBRE expects the RevPAR falloff for upper-priced properties to average just 0.8 percent.
“We view the performance of the U.S. lodging industry in 2021as a slowdown, not a recession,” Woodworth said. “In fact, we see U.S. hotel demand bouncing back strong in 2022.”
Despite the anticipated slowdown, overall hotel occupancy is forecast to average almost 300 basis points more than the long-term average through 2023. However, ADR growth will fall below inflation in 2021 and 2022.
“Several factors have muted ADR growth the past few years, including low inflation, increasing competition from non-traditional forms of lodging and the intervention of intermediary sales channels,” said John B. (Jack) Corgel, Ph.D., professor of real estate at the Cornell University School of Hotel Administration and senior advisor to CBRE Hotels Americas Research.
“In addition, several macro factors, the 2008-09 banking crisis, European debt defaults, Brexit and U.S. government shutdowns, have made travelers feel uneasy,” Corgel explained. “This has resulted in shorter booking times, a decline in non-essential travel and enhanced price-sensitivity. We believe U.S. average daily rates are roughly 0.5 percent lower than they would be without these elevated levels of uncertainty.”
The March 2019 edition of Hotel Horizons for the U.S. lodging industry and 60 major markets can be purchased by visiting: https://pip.cbrehotels.com