Average Daily Rate Will Drive US Hotel Industry Growth
The average daily rate (or ADR) measures the average room price paid in the market. In 1Q17, the ADR rose 2.5% year-over-year (or YoY) to $124.27.
July 3 2017, Updated 9:10 a.m. ET
1Q17 ADR outshines
The average daily rate (or ADR) measures the average room price paid in the market. In 1Q17, the ADR rose 2.5% year-over-year (or YoY) to $124.27. Again, this was the industry’s best ever first-quarter performance, and it likely resulted from extra holidays and events in the quarter.
YTD May 2017 performance
For the first five months of 2017, the ADR was able to clock growth. Year-to-date (or YTD) in May 2017, the US hotel ADR rose 2.4% to $125.25. In May alone, the hotel ADR rose 2% YoY to $126.63, below the 3% historical May average and the second-lowest growth of 2017.
ADR continues to rise in June
The ADR growth trend has continued into June. ADR rose 1.4% YoY to $120.34 in the week ended June 3. It rose 1.5% YoY to $128.37 in the week ended June 10, 1.7% YoY to $129.32 in the week ended June 17, and 1.1% to $129.73 in the week ended June 24.
Forecast for 2017
As we learned in the previous article, hotel occupancy is expected to fall slightly in 2017. Therefore, ADR is expected to be the sole growth driver of US hotel revenue growth in the year.
STR predicts that the ADR will clock a rise of 2.8% YoY to $127.34 in 2017, leading to a hotel revenue per available room (or RevPAR) rise of 2.5% YoY to $83.2. CBRE Hotels expects the ADR to rise 2.9% YoY, leading to a RevPAR rise of 2.9% YoY. PricewaterhouseCoopers expects the ADR to rise 2.3% YoY in 2017, leading to a RevPAR rise of 2.3% YoY.
Investors should keep in mind that ADR growth is on a falling trend. In 2016, the ADR clocked a rise of 3.1% YoY to $123.97, slower than the 4.4% YoY rise it saw in 2015. As a result, RevPAR growth is also expected to be lower than the 3% YoY average growth it’s seen in the past six years.
You can gain exposure to the consumer discretionary sector by investing in the iShares Russell 1000 Growth (IWF), which invests ~20.7% in the consumer discretionary sector and 0.36% in the hotel industry. Its holdings include 0.08% in Wyndham Worldwide (WYN), 0.19% in Marriott International (MAR), 0.08% in Hilton Worldwide Holdings (HLT), and 0.01% in Hyatt Hotels (H).
Next, we’ll discuss the US hotels construction pipeline.