For the first time ever, AAA predicted that more than 100 million people will be traveling during the holidays this year. Not all of them will be renting rooms from hotels or resorts, but it’s still good news for U.S. hotel owners and operators, who have already done well this year.

Occupancy Rates and Revenue

While occupancy rates dipped during the Great Recession, they have made a full recovery since then. In 2015, both occupancy rates and room rates (referred to as average daily rates or ADR) grew, yielding strong gains in rooms revenue per available room (RevPAR). Many analysts believe profits are likely to reach double-digits.

U.S. Hotel Occupancy Rates 2005-2015

Occupancy rates from Statista.

PKF Hospitality Research forecasted a 65.6% annual occupancy level for 2015, “an all-time record for the 27 years STR, Inc. has been reporting U.S. lodging industry performance.” The company also predicted a 7.3% increase in RevPAR this year. PwC has cited the same 65.6% occupancy rate, but estimated a more conservative increase in RevPAR of 6.5% based on concerns about lower-than-expected ADR growth. Statistics portal Statista has forecasted somewhat lower occupancy levels, but is still predicting a healthy 65.1% annual occupancy rate for 2015.

Capital Expenditures

U.S. Lodging Capital Expenditures 2005-2015

Capital expenditure data from Dr. Bjorn Hanson.

Capital expenditures are funds spent to acquire, maintain, or upgrade physical assets such as land, buildings, and equipment. According to Dr. Bjorn Hanson of the Tisch Center for Hospitality and Tourism at the NYU School of Professional Studies, capital expenditures for the U.S. lodging industry decreased after the Great Recession, reaching a low of $2.7 billion in 2010. But they have increased every year since then, and it looks like they will set a new record in 2015. Dr. Hanson has forecasted that 2015 expenditures will reach $6.4 billion, a 7% increase over the record expenditures in 2014. When capital expenditures in an industry are increasing over historical levels like this, it shows optimism about future prospects.

Some of the common assets being funded include redesigned lobbies, enhanced in-room amenities, increased high-speed Internet capacity, and other technology upgrades. These improvements may have been specified in brand standards or management contracts, but increasingly in recent years, improvements are being added due to comments on social media.

Industry Trends

TripAdvisor sponsored a survey of global travelers to find out about their travel plans and priorities for 2016. Many travelers are price-conscious, and just over 1 in 5 travelers surveyed had chosen a destination because a hotel had a special offer. However, respondents rated the following amenities as essential (deal-breakers that would cause them to choose accommodations elsewhere if unavailable):

Hotel Breakfast

Breakfast is a popular hotel amenity.

  • Air conditioning (63%)
  • Free in-room WiFi (46%)
  • Breakfast (40%)

While all demographics valued air conditioning, American Millennials in particular seemed to value WiFi access, and that is likely to be an increasingly important selection factor as this generation gains more purchasing power. Also, consumers generally value special offers and loyalty programs a bit more than businesses believe they do (in North America, 42% of travelers said loyalty programs are an important factor in their decision of where to stay, while only 33% of businesses thought so).

The TripAdvisor survey also included hoteliers, most of whom are optimistic about profits in 2016 (82% in the United States). More than 90% of business representatives rated online reviews, repeat business, and direct bookings as the most important factors for their future success. Two-thirds of all businesses plan to introduce new guest services in 2016. The most popular investment planned for 2016 was improved online reputation management.

REIT magazine noted a few trends that have contributed to the record occupancy rates. Both corporate and group travel have been up in recent years. So has international travel. The United States receives a greater share of international tourism receipts than any other country in the world. In 2014, international travelers spent an estimated $220.6 billion, and the U.S. share of those tourism receipts was 14.2%, which is well ahead of second-ranked Spain and third-ranked France.

Meanwhile, much as in single-family housing, new construction doesn’t seem to be keeping pace with demand. Jay Shah, CEO of Hersha Hospitality Trust, stated that, “Supply was up 0.8 percent in 2014 and is estimated to grow at 1.3 percent in 2015, which is well below the historical long-term supply growth of 2 percent.”

New Construction

According to the American Hotel & Lodging Association, the total number of hotel properties in the United States increased from approximately 52,000 properties in 2013 to 53,432 properties in 2014; rooms increased from roughly 4.8 million rooms to more than 4.9 million rooms during the same year. According to the November 2015 STR Pipeline Report, 3,803 hotel projects totaling 457,606 rooms were Under Contract in the United States last month. That’s a 20.6% year-over-year increase in rooms under construction. New York City had the largest number of rooms under construction, accounting for roughly 10% of total U.S. construction activity. Houston and Dallas were the next hottest markets.

The hotel industry does face a number of potential challenges. The minimum wage is rising in many areas, which will increase labor costs. There is increasing competition from the sharing economy—while travel websites such as Airbnb tend to offer fewer services and amenities, they also face fewer regulations and overhead costs and can pass on savings to consumers. And while the balance of supply and demand has generally favored hotel owners and operators in recent years, that balance could shift.

Most analysts predict that 2016 will still be a good year for the industry, but the growth in RevPAR may slow. What do you think? Let us know in the comments.