Slow Hotel Growth in 2020 Expected to Affect Sports Events
11 Dec, 2019By: Mary Helen Sprecher
The balancing act hotels are pulling off – trying to control expenses and cope with a slow growth market – isn’t showing signs of changing drastically, according to research. And while that can mean properties will be welcoming group business – and be able to offer competitive rates and packages – it also means they’re struggling against their own economy.
International Hotel Management recently reported that although revenue growth for hotels in the United States will continue to slow, CBRE Hotels Research is reporting that the industry will remain strong through the next two years.
“But,” the article notes, “while the report shows some optimism, forecasts for performance growth are a mixed bag and don’t appear anywhere near the growth rates that the industry has been enjoying the past few years.”
According to the report, U.S. hotel occupancy will dip slightly but remain above 65.5 percent through 2021. That’s 300 basis points greater than the STR long-run average, researchers noted. Additionally, revenue per available room is expected to increase at less than 1 percent per year during the same time frame.
Nope, not fabulous at all. The report went on to state that although there are many factors that could contribute to the problems hotels are having, such as growth in local market supply, low inflation, competition from the sharing economy and the expansion of intermediaries (in other words, the prevalence of hotel booking websites in common use by the public) – but that it is not possible to single out one of these.
“We’ve researched this ADR challenge and have not been able to identify one unique cause for the separation between high occupancy levels and slow ADR growth,” said John Corgel, professor of real estate at the Cornell University School of Hotel Administration and senior advisor to CBRE Hotels Research.
Additionally, researchers noted that hotels are having a difficult time creating a profit margin because of the current environment which perpetuates low revenue growth. Low levels of unemployment continue to pressure hotels to hike their salaries and wages, which make up half of their expenses.
Hotels will be hungry for sports business; however, researchers also say some markets will be stronger than others. CBRE Hotels Research is forecasting 112,262 net new hotel rooms to enter the U.S. lodging inventory during 2020. Of these, 100,224 (89.3 percent) rooms will open in the 60 major markets covered by CBRE’s Hotel Horizons reports. This is the highest percentage observed for this metric since STR began tracking the U.S. lodging inventory in 1988.
Some of the top supply growth markets (starting with the largest expected growth) are predicted to be as follows:
- San Jose-Santa Cruz, California: This market is forecast to lead the nation in supply growth with an increase of 9.2 percent
- Austin, Texas: Expected to have a gain of 8.6 percent
The following three cities will experience supply gains greater than 7 percent:
- Savannah, Georgia
- Nashville, Tennessee
- Charlotte, North Carolina
The report notes, “Unfortunately for hoteliers in Long Island, Albuquerque, Newark, Tucson and Hartford, lodging demand is expected to decline during 2020.”
Some markets will experience occupancy growth, according to researchers. Houston, Chicago and Denver hotels all are expected to benefit from a 1 percent rise in occupancy. Pittsburgh and Fort Lauderdale hotels will enjoy occupancy gains of 0.8 percent and 0.6 percent, respectively.
Researchers also report that Miami, Phoenix, Tucson and Raleigh-Durham are forecast to see their average daily rate levels increase in excess of 3.7 percent during the year. Lagging in rate growth will be the big Northeast cities of Boston, Philadelphia and New York.
In Nashville, as well as in Portland, Oregon, and Oakland, California, meanwhile, an increase in hotel construction has led to a surplus of rooms available. In all cities, occupancy levels will exceed 70 percent in 2020 but will be between 2 and 3 percent lower than they were in 2019.
Sports event owners and rights holders might automatically assume that a fairly flat hotel environment will lead to easy negotiations; however, that’s the overly simplified view. Working with hotels, and making negotiations that work, means being able to give as well as receive. Favorable conditions when setting up arrangements for accommodations can lead to long-term relationships and events that return to cities on a continuing basis. After all, the market swings up and down, and hotels will remember good negotiators -- as well as bad ones.