STR has long been the keeper of data and records for the U.S. hotel industry. We classify the performance of hotels according to established locations, price categories, and chain scales. However, every so often, the industry changes and we need to change our way of looking at the lodging world. The beginning of 2011 marked one of these major changes. Starting on Jan. 1, we discontinued the usage of the chain scales “midscale with food and beverage” and “midscale without F&B.” In their place we now classify mid-tier brands as “upper midscale” or “midscale.”
As the hotel industry evolved, the old classification based on the existence of an F&B outlet no longer seemed adequate. The new breed of limited-service hotels offers hot food and sometimes even room service, but not necessarily served out of a traditional restaurant or F&B outlet. As the definition of “outlet” changes for hotels, so does the need for a chain-scale classification for hotels that offer new ways to serve food to their guests. Therefore, we did away with the classification based on the absence or presence of a restaurant and went back to the standard way of classifying competing chains purely based on average daily rate. It is only ADR that classifies hotels as either being “upper midscale” or “midscale.” The new chain-scale lineup is available for download at www.hotelnewsnow.com/chainscales.pdf.
The performances of the chain scales were mixed during 2010. The upper end of the market saw strong demand recovery and subsequently those brands reported occupancy rates of over 60 percent. Midscale and economy properties still only sold around five of 10 rooms each day and their demand increases were more tepid than those observed at the higher rated scales. Room rate growth was non-existent except for luxury hotels and it will be interesting to observe when other hoteliers feel they have enough demand and occupancy to finally increase ADRs again. The most recent results in 2011 bode well in this respect, although there still is quite a bit of room to make up given the steep ADR discounts of the years 2008 and 2009.
For 2011 and 2012 we forecast a similar picture: Moderate demand increases and finally some stronger pricing power across the board. The increasing demand situation is helped by the lack of new supply. Without the ready availability of financing for new hotels we expect that the supply increases will be very moderate and should not really impact the performance of existing hotels. Demand increases, fueled by the return of the corporate group and transient traveler, should be sustained and as occupancies in the top 25 and larger secondary markets increase, pricing power returns to the market. As our forecast shows, we expect that the upper end of the market will continue to drive ADR and pricing momentum and therefore have a signal effect on the industry at large. It will not be until 2012 when the midscale and upper midscale properties will be able to mirror the pricing power that we forecast for the luxury and upper upscale hotels in 2011. But then we expect those rates to increase at a sustained and strong pace.
Jan D. Freitag is vice president of global development at Smith Travel Research.
