CBRE Research Forecasts Healthy RevPar Growth for Houston Hotels by 2020

A strong Texas economy is projected to stabilize in 2019 and position the Houston hotel market for continued revenue per available room (RevPAR) growth over the next few years, according to the latest forecast from CBRE Hotels Americas Research. Houston hotels finished 2018 with a RevPAR loss of 7.4 percent predominantly due to a large increase in demand from Hurricane Harvey in 2017. Now with more traditional fundamentals, CBRE research predicts a 0.3 percent growth in RevPAR for 2019 and a 3.0 percent increase in 2020.  

“The average daily rate (ADR) is the key fundamental for both the U.S and Houston market. The projected increases in ADR are at or above inflationary increases, causing RevPAR to show positive trends in the coming years,” said Jeff Binford, CBRE Hotels South-Central Managing Director. “The increase in supply slowed slightly in 2018 but is expected to increase in 2019 for a short period. While demand is projected to remain relatively strong, the slightly larger increase in supply is projected to result in a slightly lower occupancy of 62.5% for 2019.”

CBRE Research shows 161 hotels in the development pipeline from planning to construction. 36 of those are under constructions with an estimated 4,043 rooms. 

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Continued favorable economic fundamentals are expected to lead to U.S. hotel rooms RevPAR growth of 2.5 percent in 2019 and 2.0 percent in 2020.

“Supply, demand and pricing in the U.S. lodging industry are very similar to what we have observed the past few years,” said R. Mark Woodworth, senior managing director of CBRE Hotels Americas Research.  “For the most part, we expect the supply of hotel rooms entering the market to be absorbed by newly generated demand buoyed by a healthy economy.  Further, while the nominal rate of change will be modest, we are projecting average daily rate (ADR) growth above the pace of inflation for 2019 and 2020.”

Hotel demand is strongly correlated with GDP growth. With economic activity in the U.S. expected to slow in the next two years, CBRE Hotels Americas Research is projecting RevPar to decline slightly (0.6 percent) in 2021 before recovering (up 1.4 percent) in 2022. RevPAR is expected to decline across all chain-scales during the slowdown, but some will be impacted more than others.

CBRE Hotels Americas Research expects the 2021 RevPAR decline for the bottom three chain-scales, the most sensitive to changes in employment, to average 1.3 percent. Meanwhile, CBRE expects the RevPAR falloff for upper-priced properties to average just 0.8 percent.

“We view the performance of the U.S. lodging industry in 2021as a slowdown, not a recession,” Woodworth said.  “In fact, we see U.S. hotel demand bouncing back strong in 2022.”

Despite the anticipated slowdown, overall hotel occupancy is forecast to average almost 300 basis points more than the long-term average through 2023.  However, ADR growth will fall below inflation in 2021 and 2022.

“Several factors have muted ADR growth the past few years, including low inflation, increasing competition from non-traditional forms of lodging and the intervention of intermediary sales channels,” said John B. (Jack) Corgel, Ph.D., professor of real estate at the Cornell University School of Hotel Administration and senior advisor to CBRE Hotels Americas Research.

“In addition, several macro factors, the 2008-09 banking crisis, European debt defaults, Brexit and U.S. government shutdowns, have made travelers feel uneasy,” Corgel explained. “This has resulted in shorter booking times, a decline in non-essential travel and enhanced price-sensitivity. We believe U.S. average daily rates are roughly 0.5 percent lower than they would be without these elevated levels of uncertainty.”