CBRE’s forecasts for RevPAR changes in 2019 and 2020 have been adjusted slightly downward, reflecting an expected slowdown in the US economy, but the outlook for 2021 has improved, according to CBRE Hotels Research’s September 2019 Hotel Horizons report.

“We foresee estimated annual GDP growth rates ranging from 1.5 percent to 2.3 percent from now to 2022. While these numbers anticipate weaker economic growth, they do not anticipate any major set-backs in the economy. Our forecasts of RevPAR change follow the same general pattern – growth, but at low levels ranging from 0.8 percent to 1.9 percent,” said R. Mark Woodworth, senior managing director of CBRE Hotels Research.

CBRE projects GDP growth to average 1.9 percent during the second half of 2019. This is half the pace of growth during the first half of the year. Accordingly, CBRE Hotels Research forecasts a deceleration in U.S. lodging performance during the final six months of 2019. After rising by 2.1 percent during the first half of the year, the pace of demand growth will slow to 1.4 percent for the balance of 2019. As a result, CBRE now forecasts the national occupancy level to decline by 0.2 percent from 2018 to 2019.

“Fortunately, room rate changes tend to lag occupancy changes. Therefore, the annual increase in ADR will remain steady at 1.1 percent,” said Woodworth. For the year, CBRE is now projecting a RevPAR increase of just 0.9 percent, 110 basis points below the forecast the firm published in June of 2019.

CBRE’s forecast for ADR growth in 2020 has been lowered to 2.0 percent. “Downward pressure on room rates also will come from a rise in new hotel openings,” Woodworth added. “Our 2020 supply growth forecast now is 2.1 percent, which is greater than the long-run average of 1.8 percent. This will drive a 0.8 percent national occupancy rate decline for the year.” For 2020, CBRE is forecasting a RevPAR growth rate of 1.2 percent. This, too, is a downward adjustment from 90 days ago.

For 2021, GDP growth is forecast to be 1.5 percent, and employment levels are projected to decline by 0.2 percent. “While these numbers are not inspiring, they do represent a rosier outlook than what we envisioned in our June forecasts,” Woodworth said.

CBRE now forecasts a 0.8 percent RevPAR gain in 2021, up from the 0.5 percent decline projected in the firm’s June 2019 reports.

Challenge To Grow Profits

While the economy continues to support revenue growth, the ability to achieve greater profits will be difficult. With forecast revenue increases hovering around one percent, hotel operators will need to keep expense growth under 2 percent to achieve nominal gains in Gross Operating Profits. This will be a challenge given that expenses have averaged 4 percent annual growth over the long run, and the labor market is tight.

“To put things in context, however, profit margins and cash flows are at record highs, so there is some cushion on the bottom line to absorb the forecast slowdown in the economy and the lodging industry,” Woodworth concludes.

The September 2019 edition of Hotel Horizons^® for the U.S. lodging industry and 60 major markets can be purchased by visiting: https://pip.cbrehotels.com

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.

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2018 revenue). The company has more than 90,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 480 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.