After Strong First Quarter CBRE Lifts 2018 U.S. Lodging Forecast for San Francisco

Based on better than expected first quarter performance, CBRE Hotels’ Americas Research (CBRE) has enhanced its outlook for 2018.  According to STR, U.S. hotels enjoyed a 3.5 percent increase in revenue per available room (RevPAR) during the first quarter of 2018, exceeding the 2.5 percent RevPAR gain expected by CBRE for the period. Accordingly, CBRE now is forecasting a 2.8 percent annual increase in RevPAR for U.S. hotels in 2018, a 0.3 percentage point enhancement over the 2.5 percent mark published in CBRE’s March 2018 Hotel Horizons® report.

The San Francisco MSA, which includes the city and county of San Francisco, Marin County and San Mateo County, is also expected to see growth in both occupancy and average rates throughout 2018 and 2019. Occupancy is forecast to grow .8 percent in 2018 and an additional .5 percent in 2019, while average rates are expected to rise 5.6 percent and another 5.2 percent during that same timeframe. 

“With the opening of the expanded Moscone Center slated for early next year and continued growth in the corporate travel sector, we’re expecting to see rising demand and strength in ADR growth, particularly in the upper hotel sector, which includes upscale, upper upscale and luxury properties,” said Julie Purnell, Managing Director of CBRE Hotels in the Northwest and Mountain regions. “Combining those two factors with relatively measured growth in new hotels entering the market, by year-end 2018, hotels in the San Francisco MSA are forecast to see a RevPAR increase of 6.4%, compared to the national projection of 2.8%.”

Given the strong first quarter performance, CBRE’s 2018 annual forecast for growth in national lodging demand has increased from 1.8 percent in its March forecast report to 2.1 percent in the June edition. With the nation’s lodging supply forecast to grow by 2.0 percent, this now flips the occupancy projection from a 0.1 percent decline to an increase of 0.1 percent. 

“Looking toward 2019, we foresee another year of occupancy growth,” said R. Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research. “This will mark 10 consecutive years of increases in occupancy and five consecutive years of record occupancy levels.”

“With sustained record occupancy levels, we also are starting to see the return of some pricing power for U.S. hoteliers,” said John B. (Jack) Corgel, Ph.D., professor of real estate at the Cornell University School of Hotel Administration and senior advisor to CBRE Hotels’ Americas Research. “Ever since the U.S. lodging industry achieved a new all-time high occupancy level in 2015, we have observed a slowdown in the pace of annual changes in average daily room rates (ADR). This is counterintuitive to basic economic principles. However, based on the strong performance observed during the first quarter of 2018, we are forecasting a 2.7 percent annual increase in ADR for 2018. This is greater than the 2.1 percent annual change in ADR during 2017.”

“We are bullish on the performance of U.S. hotels during 2018 and the depth of the fundamentals supporting our forecast. The continual achievement of record occupancy levels, combined with improved ADR growth, should provide all industry participants with a sense of comfort. The magnitude of revenue and profit growth may not be spectacular, but it appears to be very sustainable,” Woodworth concluded.

The June 2018 edition of Hotel Horizons® for the U.S. lodging industry and 60 major markets can be purchased by visiting: https://pip.cbrehotels.com

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CBRE Hotels is a specialized advisory group within CBRE providing capital markets, consulting, investment sales, research and valuation services to companies in the hotel sector. CBRE Hotels is comprised of more than 385 dedicated hospitality professionals located in 60 offices across the globe.