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Hotel Budgeting Strategies for 2018

by / Friday, 15 December 2017 / Published in Blog, Hotel Budget, Hotel Marketing
hotel budgeting strategies 2018

The end of the year means extra focus on hotel budgeting strategies for 2018. While the end-product is an estimated financial statement for the upcoming year, the process begins with a marketing plan. Robert Mandelbaum, contributing author at Hotel Management, shares useful insights in his article, “Understand Your Local Market When Making 2018 Budget.”

Research conducted by CBRE Hotels’ Americas Research found that 75-80 percent of a hotel’s performance can be explained through movements in the market. When determining hotel budgeting strategies, it’s necessary to understand local market conditions. CBRE is finding significant differences between national lodging performance data and the individual markets they forecast.

September 2017 editions of Hotel Horizons project a 2.4 percent increase in revenue per available room for all U.S. lodging; however, the aggregate occupancy level for 60 Horizons markets is expected to decline 0.7 percent in 2018. The remaining markets are expecting a 0.7 percent occupancy boost.

National and market-level performances are also different for 2018 ADR forecasts. The 60 Hotel Horizons markets are expecting a 2.6 percent rise in ADRs, compared to 2.3 percent for the nation and 1.6 percent for smaller markets outside of the Horizons areas.

Supply and Demand

In 2018, CBRE expects a 2 percent increase in available rooms in the U.S., exceeding an average 1.8 percent annual rate of supply growth. This increase above demand explains why 50 of the 60 Hotel Horizons major markets may realize a decline in occupancy rates next year.

The imbalance of supply and demand is less obvious when taking a look at national trends, but 50 of the 60 major markets studied are expected to take an occupancy dip in 2018.

The main difference between national and local is due to the skew of development activity. The CBRE study projects about 90 percent of the new hotel rooms in the U.S. will reside in the 60 Hotel Horizons markets.

Nashville ranks at the top of Hotel Horizons’ growth markets with supply projected to increase by 8.1 percent. On the opposite end of the scale are Albuquerque, Austin, Oakland, Tucson, and West Palm Beach with less than 1 percent projected growth.

Hotels in Nashville, New York, and Miami will meet their new supply with an increase in occupancy, projected to grow by more than 5 percent in 2018. Oakland gets a double hit with low development and a 1 percent decline in demand.

Occupancy and ADR

While competition is tough, aggregate occupancy levels for the 60 top hotel markets studied should remain above 70 percent through 2021. About half of those markets, 52 percent, will reach occupancy rates that exceed their long-run averages.

Houston and San Antonio will experience the greatest increase in occupancy, up 1.3 percent, while Seattle will dip -3.5 percent due to a 6.9 percent increase in supply. This growth overshoots Seattle’s demand projections by 3.2 percent.

Overall, U.S. lodging markets are holding strong with 49 out of 60 Hotel Horizons markets expected to increase ADR 2.2 percent above the rate of inflation.

While Houston is enjoying occupancy gains, the depressed energy market and supply increases will lower ADRs in that market, -1 percent projected in 2018. Also affected by supply surges, New York, Miami, and Pittsburgh can expect ADR depression, while Anaheim, Orlando, Sacramento, and Salt Lake City will see strong ADR gains.

Moral of this story: carefully research your local market conditions to scale your hotel budgeting strategies appropriately in 2018.

Read the full article.

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