How Hotel Owners Can Grow RevPar in 2019

RevPar growth is slowing, and experts at ALIS expect that it will continue to slow through 2019. On the Numbers – What to Expect in 2019 and Beyond panel at ALIS this week, speakers talked about the slow down in RevPar growth, and how hotel owners could drive growth in the year ahead. The panel included panelists Kristian Gathright, EVP and COO at Apple Hospitality REIT; Cindy Estis Green, CEO and co-founder at Kalibri Labs; Vail S. Ross, SVP at STR; Mark Woodworth, senior managing director at CBRE Hotels; and Mark Wynne Smith, Global CEO of Hotels at JLL.

“People are focused on occupancy, but I think they need to be more granular,” Green said. There has been a focus on increasing occupancy to drive RevPar growth, but Green said that the focus on occupancy combined with rate transparency from online booking channels has driven the average daily rate down, putting downward pressure on RevPar. “Strong consumer demand and guest paid revenue is growing, but there is a race between where business is coming in,” said Green.

Last year, RevPar grew 2.9%, and in 2019 Ross projects RevPar growth will fall to 2.7%, and is less confident about ADR. “If things can stay the way that they are, we are confident. ADR, we are more conservative,” she added. “We are confident today, and any uncertainty is around ADR.”

With ADR growth falling stagnant, Green recommends that owners focus on customer mix, looking to group, business and leisure travel mixes, which can adjust total RevPar. “There is a tremendous amount of downward pressure around rates. A lot of people think that increasing ADR is putting rates up,” she said. “If you think of it in terms of business mix, the average rates can be adjusted.”

Group demand is one area of business mix that is growing. In 2018, group demand came back and helped to drive RevPar growth. “When we have a good foundation of group in hotels, it allows you to serve transient demand as well,” said Ross on the panel. “The corporate and business traveler is also showing up. Understanding the mix and seeing those opportunities is a way to drive growth.”

Ultimately, Green said that hotel owners will have to take business mix into account if the economy either slows or falls into a downturn—what Woodworth called a dip or a blip on the panel. Analyzing business mix and looking for areas to boost RevPar on a granular level are going to matter tremendously in a less encouraging economic climate. “If the economy does hit a dip or blip, we are going to be more discerning about our decisions we make because it could impact profitability when demand starts to slowdown a little bit,” she said.

Woodworth believes that a blip—not a dip—is coming, estimating that it will hit in 2020 and be mild. He says that the days of cap rate compression are over, and that capital is going to be more selective in the year ahead. “Average level of uncertainty is significantly higher than what it has been,” he said. “Our job is to determine economic expectations.”