Hotels occupancy rates are continuing to rise, and this year, the trend is expected to continue, according to experts at ALIS. Growing occupancy rates will, of course, help grow revPAR in the coming year—but the outlook for room rate growth is more complicated. Numbers experts at ALIS had three different outlooks for where hotel room rates are heading in 2018.

Mark Woodworth, senior managing director at CBRE Hotels expects room rates to grow in 2018 thanks to the new tax law and rising occupancy levels. “There is a growing view that we are in a cycle within a cycle, and there is going to be a surge that is going to run in the next six to nine months. So, we might see a bit of a lift in this very high peak level performance. Since in most markets, hotel occupancies are full, it would suggest that with the tax law and with greater resources, whether it is on the consumer spending side or the business investment side, some of those dollars should find there way into other forms of travel. If we are already full, that would suggest that there could be a nice surprise on the room rate side,” he said at the conference.

Cindy Estis Green, CEO and co-founder at Kalibri Labs, said that there might be some gains in room rates, but much of that is going to third party providers, not the actual hotel. She said that hotels are too focused on occupancy gains to increase revPAR rather than room rates. “Besides the fact that rates are higher, but hotels aren't collecting it, third-party operators are, hotels are very fixated on revPAR index, which can sometimes push them to go for occupancy at the expense of rate,” she said. “With the pressure from third-parties to put more business through their channels, it can cause a lot of pressure to lower those rates or to try to be more competitive with those rates. It is harder to push against the rate obstacle than it is against occupancy when demand has been strong. For hotels, it is an easier path to go for occupancy at the expense of rates.”

Carter Wilson, VP of consulting and analytics at STR, said that it is easy to make a broad statement if you look at national trends, but the story changes when you look at specific classes of hotels in specific markets. He said that room rates are already rising in some cases. “Confidence is definitely an issue with rate. If you look back to the late 90s when we didn't have anywhere near the occupancy that we have now, even after adjusted for inflation, rates were much more robust then,” he explained. “What is interesting is that because rates overall are growing at 2% doesn't mean that all rates are equal. If we looked at every hotel in the US and broke it our into quartiles of rate growth, the top quartile the rates are growing at 8%. If you look at the average composition of that hotel, it is an economy hotel with 100 rooms in the suburbs. The overall average rate of these hotels isn't great enough to lift the entire country. The point is that there are hotels that are able to push rates, but collectively, it has been a struggle.”

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Hotels Focused on Occupancy Over Rate

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