A new report from Trepp suggests that the US lodging industry is peaking and starting to impact the CMBS market.
Trepp cites research from US Lodging analytics firm STR showing that 2016 marked the industry’s first year-over-year quarterly occupancy decline in over six years, as well as the lowest RevPAR growth since the start of the recovery in 2010.
Occupancy in fell 0.5 percent to 67 percent in Q1 while RevPAR growth for the first five months of the year dipped down to 3 percent.
The dips in occupancy rates and hotel revenue per existing room (RevPAR) growth are potentially impacting the lodging CMBS market, the Trepp report shows.
The average loss severity for hotel CMBS loans disposed with losses has been inching up in the beginning of this year, rising from roughly 45 percent to above 60 percent between December 2015 and May 2016.
And, much like the rest of the CMBS market, private CMBS lodging issuance for the first half of 2016 dropped to $4.5 billion, down from the same-period issuance of $13.3 billion in 2015 and $7.1 billion in 2014.
“New supply is beginning to outpace demand and sluggish GDP and inflationary growth, recorded so far this year, have caused many industry experts to reduce their projections for the rest of 2016,” Trepp stated in the report.
Following the last financial crisis, US lodging had robust growth each year since 2009, with record levels of demand, occupancy, average daily rate (ADR), RevPAR and hotel profitability in 2015, Kroll Bond Rating Agency noted in a report earlier this year.
But a hotel outlook report this February from Fitch Ratings warned: “the construction pipeline within these markets exceeds 15 percent of the existing supply of available rooms, which may put additional pressure on RevPAR (revenue per available room) sustainability.”