Economy Watch: A Hot Time for Hotels

By Dees Stribling, Contributing Editor

While the U.S. apartment sector gained strength year after year since the recession and the office and retail sectors improved somewhat in some places and a lot in others, the hotel sector’s quietly been gaining a tremendous head of steam. STR’s latest numbers show that beyond any doubt: April 2015 had the highest annualized occupancy ever in the industry, 66.8 percent, and the highest room demand ever (99.4 million rooms). Demand was 3 million room nights higher in April than last year, while supply was 1.7 million room nights higher. Hotels are being developed, but not at a high enough clip for supply growth to match demand growth.

Moreover, RevPAR grew 6.4 percent this April, which is slower than the average so far this year, but not too shabby. STR reports that RevPAR has grown every month for more than five years now, and the company doesn’t expect that pattern to change anytime soon. Only three markets of the top 25 hotel markets nationwide saw a drop in RevPAR in April (Boston, Houston and New York City). A drop in occupancies inspired the RevPAR drop in Boston and Houston, while the reason for New York’s drop isn’t so clear, though the growth of Airbnb in the market might be a factor. New York nevertheless has the highest occupancy of any U.S. market, at 86.9 percent.

Another real estate sector (subsector of retail, really) that’s doing well is restaurants. Driven by stronger same-stores sales and customer traffic levels, the National Restaurant Association’s Restaurant Performance Index posted a gain in April. The index—a monthly composite that tracks the health of and outlook for the U.S. restaurant industry—stood at 102.7 in April, up from 102.2 in March. April represented the 26th month in a row in which the index stood above 100, which points to the expansion of key industry indicators.

Does a fairly optimistic consumer have anything to do with these positive metrics? Hotel occupancy is driven partly by optimistic consumers, who tend to travel more, and the restaurant business depends even more strongly on happy people choosing to devote some of the discretionary income to food not from home. The final University of Michigan consumer sentiment index for May came out on Friday at 90.7, up from the mid-month reading of 88.6, though down from 95.9 at the end of April. The index might be lower than it was a month ago, but it still turned in a respectably optimistic reading.