Fitch: US RevPAR Forecast Trimmed on Weak Transient Trends

NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: Group Therapy: Fixating on a Late Cycle Demand Indicator (What U.S. Lodging Companies Are Saying)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878473

Fitch Ratings has lowered its 2016 U.S. RevPAR growth forecast to 4%-5% from 4%-6%. RevPAR growth will not likely exceed 5% for the year due to weaker than expected fourth-quarter and year-to-date transient demand growth. Fitch expects group demand -- hotel stays booked in room blocks of 10 or more -- to drive RevPAR growth for the U.S. lodging sector during 2016 and the balance of this upcycle, exceeding our 4%-5% expectation for the year by 100 to 200 basis points.

Group demand can support hotel cash flows and credit profiles, but it is another indication that the U.S. lodging cycle is peaking. The group demand strength today is largely a function of decisions made several years ago and, therefore, does not necessarily reflect current demand. Group demand lags transient during recoveries to varying degrees based on event type and size. The advance bookings window can range from in the quarter/for the quarter for smaller groups to five years or more for large associations.

The revenue pace for advance group bookings is up in the mid-to-high single digits for most lodging companies for 2016 and even higher for 2017 and 2018, primarily reflecting a lengthening of the bookings window. However, pace can be influenced by booking patterns, and the current strength may reflect earlier bookings, rather than additional demand. Nevertheless, the 2016 citywide convention attendance outlook is positive for most large group-oriented markets.

Heightened global economic uncertainty is arguably overshadowing the hit to RevPAR from the collapse in oil prices. Excluding oil-centric markets and the supply challenged New York City market, U.S. RevPAR trends show growth in the mid-to-high single digits.

Lower inbound international visitation to the U.S. due to the strong U.S. dollar is also weighing on transient demand, likely clipping RevPAR growth by 50 to 100 bps in select gateway markets, such as New York. International demand varies by market but can comprise upward of 10%-15% of hotel demand in gateway cities and a larger percentage for individual hotels in these markets.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160303006229/en/

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Source: Fitch Ratings

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