Hotel Industry To Break Records Through 2019: 4 Solid Buys
Zacks Investment Research | Jan 29, 2018 08:37PM ET
The U.S hotel industry posted a stellar performance in 2017 and experts believe that it will break more records through next year. Demand for hotel rooms is burgeoning, with revenue per available room (RevPAR) increasing for a whopping 94 months in a row.
A strong economy bolstered by record consumer spending levels was cited as the primary reason for the impressive performance. Such encouraging factors will help the hotel industry gain traction in the near future, while GOP tax cuts will spur an increase in leisure as well as hotel development. Given the positives, doubling down on the hottest hotel stocks seems judicious.
Record-Breaking Growth Projected for Hotel Industry
As per hotel research firm STR and Tourism Economics, the hotel industry is projected to see a 0.3% rise in occupancy in 2018. Average daily rate (ADR) and RevPAR are expected to rise 2.4% to $129.77 and 2.7% to $85.82. While the luxury and independent segments will witness the largest increase in occupancy this year, Independent hotels are expected to post considerable growth in ADR (+2.5%) and RevPAR (+2.9%).
As per the report’s initial forecast for 2019, the hotel industry is projected to report a 0.1% increase in occupancy, 2.3% growth in ADR to $132.81 and 2.4% rise in RevPAR to $87.89. RevPAR is expected to be the maximum at the Luxury segment.
All the three key metrics are poised to scale north this year and the next as demand continues to outpace supply.
| Outlook | 2018 Forecast | 2019 Forecast |
| Demand | +2.3% | +2.0% |
| Supply | +2.0% | +1.9% |
(Source: STR/Tourism Economics)
Needless to say, occupancy increased 0.9% last year and ADR rose 2.1% to almost $127, driving RevPAR by 3%. All the metrics surpassed projections and touched record levels, per the report. Houston, Texas, in the meantime, reported the highest spike in RevPAR, thanks to displaced residents seeking rooms due to hurricane Harvey. Meanwhile, Nashville, Tennessee, posted the largest rise in ADR.
Stronger GDP — A Key Catalyst
The hotel industry is in a solid position moving through the next year, particularly due to a stronger economy powered by record consumer spending levels. The nation’s GDP increased at a seasonally adjusted annual rate of 2.6% in the final three months of 2017 following gains in the previous two quarters of more than 3%, per the “advance” estimate released by the Bureau of Economic Analysis. This marked the economy’s strongest stretch of growth since the expansion started in mid-2009.
The economy was driven by solid consumer spending in the fourth quarter. The main engine of the economy grew at 3.8% over the quarter after a 2.2% gain in the third quarter. Consumer outlays, thus, registered the fastest pace of growth in the fourth quarter in almost two years. Spending, in fact, climbed 0.4% in December, notching the highest increase in household buying since 2011.
Consumers are, largely, benefitting from a low unemployment level and rise in income. Jobless rate remained at an ultra-low level of 4.1% and workers’ pay increased 2.5% from December 2016 to December 2017 (read more: Zacks Investment Research
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