Examining the Strength of the Top 25 Hotel Markets

As the U.S. hotel industry continues its RevPAR growth cycle, some signs of a growth slowdown are apparent. The increase in new rooms in the United States is rapidly matching with the growth in U.S. rooms demand, leading to occupancy declines. But not all supply growth and performance is created equal. There is a distinct difference between some of the largest U.S. markets—which we dubbed Top 25 markets—and the other 164 markets that STR tracks.

Through October 2016, the supply growth for the larger markets was 2 percent, well above the national average of 1.5 percent and above the all other market average of 1.3 percent. The reasons are varied, but for one, the larger markets have recorded much higher occupancies: 75 percent versus the sub-65 percent performance of the other markets (63.7 percent to be exact). No wonder that developers go where demand and utilization are higher.

Despite selling three out of four rooms every night, hoteliers in the large markets have not been able to increase their ADRs as strongly as elsewhere. The year-to-date ADR change of 2.6 percent is not insubstantial, but is not as strong as the 3.3 percent for the other markets. It is a bit odd that despite running very full hotels, hoteliers don’t seem to be comfortable increasing rates. Maybe the high level of ADR ($151.94) is hard to push? The ADR increases so far this year are well above the level of inflation, so the profit for properties should increase.


Demand increases so far this year have been muted across the board. STR recorded only a 1.4 percent increase in demand for all other markets and slightly better 1.7 percent demand growth for the top 25 markets. This seems to point at the fact the larger markets are able to attract more leisure and business travelers but especially have larger facilities for more meetings.

That said, the segmentation data is concerning and probably points at a further softening in the corporate sector. Through October, the transient occupancy in the larger markets only increased 0.2 percent. It bears repeating that supply growth was much stronger now than a year ago so the demand growth needed to push occupancy to 0.2 percent was approximately 1.9 percent. Still good growth but not great compared to other years. Group occupancy declined by 1.6 percent, pointing at a lack of corporate demand. The ADR side of the RevPAR equation was better, but not by much. Transient ADR increased 0.2 percent and group ADR increased 3.4 percent. Traditionally, transient ADR has a signaling effect on group ADR, and if hoteliers do only realize very small ADR increases, it is not a stretch to assume that the group rate negotiations for 2018 and 2019 will be tough (from the hoteliers’ perspective).

Looking ahead, we still expect the top 25 markets to set the tone for the U.S. performance. Whether it be supply growth or ADR growth, the larger markets have a bellwether function for the larger U.S. hotel industry. And while the growth of the performance metrics is slowing (outside of supply growth, of course) operators in the larger markets should benefit disproportionately from any economic upside that the year may bring.

About the Author
Jan Freitag is senior vice president of STR.

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