Average Daily Rate Will Drive US Hotel Industry Growth

Ally Schmidt - Author

Jul. 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.

Article continues below advertisement
Article continues below advertisement

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.

Article continues below advertisement

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.


Latest iShares Russell 1000 Growth News and Updates

    © Copyright 2023 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.