Is a slowdown coming for the hotel industry?

hampton-inn

 

by Dan Rafter 

The hotel market across the United States is still strong. But according to Marcus & Millichap, growth in the hospitality sector is starting to slow.

In its mid-yeaer hospitality report, Marcus & Millichap says that occupancy rates are starting to fall in some markets as the supply of new hotel rooms outpaces the demand for them.

This doesn’t mean that the hotel market is struggling. Far from it. It’s just that the explosive growth in new rooms is now slowing. Don’t expect to see developers add as many new hotels to most markets in the Midwest and across the country.

And when hotels are added? The odds are good that they will come in the form of what Marcus & Millichap calls upper midscale inns. This type of hotel is best represented by Holiday Inn and Hampton Inn, both chains that attract large and small investors alike. Marcus & Millichap says that these hotels attract the most attention from investors today.

Marcus & Millichap reported that the occupancy rate for U.S. hotels will rise 30 basis points this year to 65.8 percent. Despite rates actually dropping in some markets, that 65.8 percent figure will rank as the highest annual occupancy rate on record.

Revenue per available room — better known as RevPAR — will jump 4.5 percent this year to $82.24, Marcus & Millichap reports. But Marcus reports that this growth will come almost entirely from an increase in average daily rates charged by hotels, an increase from $120.05 in 2015 to $124.97 this year.

Hotel expansion is slowing, but new rooms are still being added. Marcus & Millichap reports that about 100,000 new hotel rooms are slated for completion this year, most of these rooms being in the select-service end of the industry. There are an additional 210,000 rooms that are planned and in the conceptual stages. Marcus & Millichap says that as the hotel cycle matures, though, construction lenders might hesitate to fund additional projects in the hospitalilty sector.

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