Hotel sector ‘peaking’: Fitch Ratings

The hotel sector is peaking as demand stalls and certain markets experience revenue per available room (RevPAR) declines due to oversupply and their reliance on the energy sector, according to Fitch Ratings’ quarterly update.

The hotel sector is peaking as demand stalls and certain markets experience revenue per available room (RevPAR) declines due to oversupply and their reliance on the energy sector, according to Fitch Ratings’ quarterly update.

Trailing 12-month RevPAR has been positive for 68 sequential months during this US lodging upcycle through April 2016, and RevPAR growth from the trough is within 1 percent of the high watermark set by the early 1990s recovery, the ratings agency said.

A hotel concierge handing room keys and talking on the phone. Rome, ItalyAverage daily rates (ADR) have surpassed their prior cycle peaks of last year and continue to drive RevPAR. But although that growth is forecasted to continue in 2016, it will be at a “more modest rate given weaker inbound visitation, accelerating new supply, rapid growth in alternative accommodation websites, and geopolitical instability.”

As a result Fitch lowered its RevPAR growth forecast for 2016 to 4-5 percent from 4-6 percent due to weaker than expected year-to-date demand growth.

Among the most vulnerable cities are Nashville, New York, Miami, Seattle, Houston, Dallas and Denver markets, due to potential oversupply.

“The construction pipeline within these markets exceeds 18 percent of the existing supply of available rooms, which may put additional pressure on RevPAR sustainability,” Fitch noted.

The following markets have experienced the most severe year-over-year RevPAR declines:

-North Dakota (statewide): RevPAR down 31.6 percent due to weakness in oil sector

-West Virginia (statewide): RevPAR down 20.7 percent as a result of energy sector

-Alberta, Canada (province-wide): RevPAR down 19.6 percent due to weakness in oil sector

-Houston, TX: RevPAR down 7 percent due to weaknesses in oil sector

-Miami, FL: RevPAR down 4.6 percent due to possible oversupply

-Chicago, IL: RevPAR down 3 percent due to possible oversupply

-New York, NY: RevPAR down 2.3 percent due to increasing supply

Meanwhile, the multifamily and office outlook remained stable, while retail was “stabilizing.”

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