IRVINE, CA—Auction.com has released its Q2 2015 Hotel Monitor Report, which details how increases in occupancy and room rates are sustaining healthy revenue per available room (RevPAR) in the hospitality industry even as expansion downshifts.
Auction.com projects that occupancy will reach 73.7% between now and 2018 as room rate growth simmers down to a still-healthy mid-3%range. As a result, RevPAR growth will average 4.7% through 2018.
“Supply and demand in the hospitality sector is playing out the way we've anticipated, and we continue to expect increases in occupancy over the next several years, regardless of the step back seen during Q2 2015,” said Peter Muoio, Ph.D., chief economist for Auction.com. “As expected, the supply pipeline remains moderate but increasing, while expansion appears to be shifting into a slower growth phase.”

Second-quarter room rates continued to rise, increasing a seasonally adjusted 1.6% and pushing average daily rates (ADRs) 4.8% above the year-ago total. Room sales fell on a seasonally adjusted basis for the first time since mid-2012, but remained 2.7% above last year's level. The drop in room sales pulled industry revenue down 2.2% from Q1 (adjusted seasonally), but still 2.7% above what was reported a year ago. Seasonally adjusted vacancies slipped to 65.2% from their Q1 high of 65.5%.

Although demand continued to outpace new supply in Q2, hospitality segment demand and supply curves came closer toward balance. The US room count was up 1.1% year-over-year in Q2, matching the expansion pace of the previous quarter. Since 1990, the U.S. room supply has increased by an average pace of 1.7% per year, so despite the robust current operating conditions, room supply gains remain relatively modest.
Consumer spending on hotel and motel rooms has continued to expand – up 5.7% year-over-year – reflecting the firmer economic environment. Business travel also continues to see strong growth, which is expected to accelerate in 2016. However, foreign travel to the U.S. is expected to be a weak link in U.S. hotel demand in the coming quarters due to the strengthening of the dollar compared to foreign currencies.
The West and Southeast are particularly vibrant hospitality markets thanks to their stronger local economies, while the Midwest and Southwest will see gains that are more muted. Oil prices continue to act as a drag in certain markets such as Houston, where a robust supply pipeline is just now coming to market. New York City and Washington, D.C., also face very large supply additions in the coming years, and could see dips in international tourism owing to the stronger dollar.
Auction.com is benefiting from a strong overall hospitality sector. Within the first seven months of 2015, the company has closed 40 hotel transactions across the U.S., with total sales proceeds exceeding $160 million. With another 35 hotels currently in escrow and scheduled to close through mid-September, Auction.com is well on target to surpass its 2014 hospitality sales total of $256 million.