RevPAR, the most important number for hotel owners, finally showed a decline in September, falling 0.3 percent. This, though, was the first time this number – which stands for revenue per available room – fell in 102 months.
Does this mean that the hospitality industry is due for a slowdown after more than eight years of RevPAR growth?
Probably not. A recent story by Hotel News Now does a good job of explaining why. If you take out just one city, Houston, September RevPAR actually shows an increase of 0.4 percent when compared to August. This indicates that the hospitality business is still in growth mode.
Adrienne Kautzman, a director specializing in mortgage banking for the hotels and hospitality group of Berkadia, said that she still sees plenty of rooom for growth in this sector, with key numbers from RevPAR to room occupancy rates to room supply remaining strong.
And depending on in which market a hotel sits, the numbers might be even stronger locally than they are on a national level, Kautzman said.
“This remains a street-corner business,” Kautzman said. “The national trends get the headlines, but I do think you have to remain very focused on your specific market. You have to look at the demand and supply in your own market. What you see happening nationally won’t correlate in each market.”
Why has the hotel business been so strong for so long? Kautzman points to the growth of the U.S. economy, which has left those traveling for pleasure with more money to spend. The strong economy has also provided companies with more cash, money they can use to send their employees on business trips.
Just as importantly, though, has been a shift in perception. Today, Kautzman says, people expect to take more trips.
“During the last decade, travel has become something that is viewed as more of a right,” Kautzman said. “It’s become less of a ‘nice to have’ and more of a ‘need to have.'”
People, then, are fitting more trips and hotel stays into their busy schedules. That’s helped fill rooms across the country.
And when people do travel, they share their experiences through social media, posting pictures from beaches, museums and downtown restaurants. This encourages more people to hit the road, too.
“So much of what we do today is driven by social media,” Kautzman said. “People are always sharing their experiences. The younger generation today really believes in the value of experiences. The hospitality segment benefits from that because this segment is all about experiences.”
Whatever the exact combination, the hotel industry has certainly been on a positive streak. The third quarter of this year was no exception.
Hyatt Hotels saw a system-wide growth in RevPAR of 2.8 percent during the third quarter, according to its most recent financial report. LaSalle Hotel Properties reported that its RevPAR grew 2.7 percent during the third quarter. And Hilton Worldwide Holdings reported RevPAR growth of 2 percent for the third quarter.
Hotel construction numbers have been strong, too, with new units springing up across the Midwest and the country. When hotels do open, the majority of them fall into the limited-service category.
As the name suggests, limited-service hotels do not offer all of the amenities you’d find in a full-service hotel. These hotels don’t have onsite restaurants, though they often offer free breakfast. They might not have ballrooms or entire floors devoted to meeting rooms, though they usually have pools and onsite fitness centers.
Kautzman said that these hotels are attractive to owners and investors because they have higher profit margins. Owners don’t have to hire restaurant staffers. They can instead hire a smaller staff to manage the front desk and handle sales from the grab-and-go snacks that new limited-service hotels usually offer.
Consumers often don’t miss the onsite restaurant, Kautzman said. And they appreciate the often lower rates that come with limited-service hotels.
“If I am traveling, I don’t necessarily need a convention center hotel with a ballroom or an onsite restaurant,” Kautzman said. “I want to be close to where I need to be. Location is the most important feature. And if a limited-service hotel offers grab-and-go food, that is usually enough.”
What does the future hold for the hospitality industry? It’s not easy to make predictions, but Kautzman says she sees little to suggest that the hotel business won’t remain strong in 2019.
“I think you’ll see a stable to strong hospitality industry in 2019,” she said. “Of course, everything is dependent on the specific street-corner location. There are some markets that will feel the pain in the next 12 months. The blend of supply and demand might have gotten out of whack. But generally speaking, 2019 should be a good year for hospitality.”