NEW YORK CITY—Lodging RevPAR will decelerate this year while remaining modestly positive, Fitch Ratings said Thursday. This will extend the hotel sector's longest and second strongest recovery since 1987 for at least one more year, according to a report from the ratings agency.
Fitch notes that US lodging RevPAR has been positive for 80 consecutive months; however, its forecast calls for low-single-digit growth through year's end, with varying levels of performance in terms of location as well as demand drivers. “Leisure travel demand will outpace corporate transient and group business,” the report states.
Resort, suburban and airport location hotels will outperform their urban counterparts “due to less new supply,” according to Fitch. “International visitation, corporate industry exposure and new supply will color market level performance, which will vary widely and be weak in key REIT strongholds, such as New York and San Francisco.”
Generally, currency remains a headwind that will reduce inbound international visitation and prompt more US citizens to travel overseas, Fitch says. The report notes that currency-adjusted US hotel ADR reached a new high in March, primarily on US dollar strength. Additionally, the report says, rebounding oil prices will lead to higher travel costs, in the form of higher airline fares and gas prices.
Fitch sees supply growth remaining at or above demand for the remainder of this upcycle, particularly in the limited service sector. Although the number of rooms under construction is moderately below its prior peak, the pipeline of new rooms, including those in the final planning stages, is 24% above. That could be problematic for specific markets like New York, Nashville, Seattle, Dallas and Miami, says Fitch.
Banks have reacted accordingly, tightening their commercial real estate standards, particularly for development loans, which could help to temper new supply. Although mortgages are generally still accessible, terms are more stringent, pressuring cap rates and valuations. Additionally, hotel investment volumes are down year to date.
On a more positive note, Fitch expects continued moderate growth in US GDP, with the forecast calling for 2.1% growth in '17 and 2.6% in 2018. While consumer confidence and employment are both positive, nonetheless rising interest rates are a concern.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
