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Hospitality Industry Update

The Hospitality Industry is at a neutral point. Occupancy rates for 2019 and 2020 are expected to be stagnant to a slight decline. ADR is expected to have a slight increase over the next two years as a result of rising inflation rates. Supply is expected to remain steady averaging slightly over the long term average of 1.8%. Demand will have a slight increase but that is offset by a larger supply increase resulting in the slight decline in occupancy rates.

2019 CBRE
Supply: 2.0%
Demand: 1.8%
Occupancy: – 0.2%
ADR: 1.1%
RevPar: .9%

2019 Smith Travel
Supply: 1.9%
Demand: 1.9%
Occupancy: 0.0%
ADR: 2.3%
RevPar: 2.3%

2020 CBRE
Supply: 2.1%
Demand: 1.3%
Occupancy: – 0.8%
ADR: 2.0%
RevPar: 1.2%

2020 Smith Travel
Supply: 1.9%
Demand: 1.7%
Occupancy: – 0.2%
ADR: 2.2%
RevPar: 1.9%

Interest rates are expected to continue to decline which will help stabilize values as net operating incomes may very well decline. Operating expenses have increased an average of 4% per year over the last several years. Given the top line projections operating expenses will need to be curtailed to a 2% increase in order to obtain the same net operating income. This is going to be very difficult to do in light of the tight labor market, rising insurance costs, taxes, utilities, etc.

The good news is this is just a blip on the radar screen and not a recession. Things are going to slow down but good operators and good properties will be just fine.