Arkansas hotel occupancy down in 2017, while U.S. industry posts record year

by Jennifer Joyner (JJoyner@nwabj.com) 575 views 

Lobby view of the new Hilton Garden Inn in downtown Little Rock.

The occupancy rate of Arkansas hotels in 2017 was down 3% from the previous year, according to a report from the hotel industry data resource, STR. With an occupancy rate of 53.5%, Arkansas trailed behind the national average and was out of step with an upward trend that resulted in a record-breaking year for the U.S. hotel industry. U.S. hotel occupancy was up 1%, reaching 65.9%.

Average daily rate (ADR), another key metric, was up 2% in Arkansas, reaching $81.48. Revenue per available room (RevPAR) was down 1% to $43.59. Statewide hotel revenue was down 0.1% from 2016, bringing in $785.6 million. ADR for U.S. hotels was up 2% from 2016, and RevPAR gained 3%. Those two benchmarks, in addition to occupancy, were the highest STR has ever measured, according to the report.

“The industry outperformed projections and reached record-breaking levels across the metrics in 2017,” Amanda Hite, STR’s president and CEO, said in a press release. “Late-year demand growth, which was no doubt boosted by post-hurricane business in Houston and several major Florida markets, pushed well past a healthy influx of new rooms entering the marketplace. That allowed the industry to end the year well above forecasted levels after seeing more modest rates of growth through the first half of 2017.”

In Arkansas, an increase in supply affected performance, said Montine McNulty, executive director at the Arkansas Hospitality Association, in an emailed statement. She also pointed to increased use of tech-enabled guest rental companies like Airbnb, HomeAway, VRBO and FlipKey, which is not tracked within the STR report.

“I believe visitors are traveling to Arkansas in increased numbers, but there is increased competition for their business,” she said.

Though Arkansas’ hotel use did not show the same growth as in other parts of the country, Chet Patel, president of Pinnacle Hotel Group in Little Rock, told Talk Business & Politics earlier this year a bump up in room rates is a positive sign.

“Heads in beds is great, but 100% occupancy doesn’t always mean you’re coming out ahead,” said Patel, who is chair of the Arkansas Lodging Association.

A typical single room in Arkansas ran $45.24 cheaper than the national average, and RevPAR was $40.08 less, but the state has shown steady annual increases in room prices since 2011, growing an average of 2% each year, according to STR.

FORT SMITH FORECAST
After five years of growth in the three key metrics of occupancy, ADR and RevPAR, Fort Smith hotels in 2017 showed a 7% drop in occupancy to 54.9%, a 1% drop in ADR to $72.13 and an 8% drop in RevPAR to $39.57.

Fort Smith’s decreases can be attributed, in part, to circumstances in 2016, said Claude Legris, executive director of Fort Smith Convention and Visitors Bureau. The Holiday Inn Fort Smith-City Center was closed that year, taking 252 rooms off the market, and a spring hail storm positively affected demand, which showed a 4% drop in 2017.

Supply went up 4% in 2017, according to STR, and Legris said that’s partly because of the re-opening of the 252-room hotel as the DoubleTree by Hilton Fort Smith City Center, after a $9 million renovation. The city also took on 94 new rooms with the addition of Fairfield Inn & Suites by Marriott in December.

At the same time, the Fort Smith Advertising & Promotions Commissions fell short of projected tax revenue in 2017, which Legris said was a result of being “overly aggressive” on the budget. He expects convention business to pick up, partly because of the draw of the city’s bicentennial commemoration. There were 18 larger-scale Convention Center events in 2017, and there are already 20 on the books for this year.
Long-term, Legris said the planned 2019 opening of the U.S. Marshal Museum in the city will be a game-changer for tourism and, as a result, the hotel market.

“That really will make a huge difference for us, and it can be tied in with different historical and cultural centers and world-class museums like Crystal Bridges (Museum of American Art in Bentonville) and the Clinton (Presidential Library and Museum in Little Rock).”

OCCUPANCY DOWN, RATES UP
Occupancy also was down in three other of the state’s metro areas, though room rates were up. After five years of increases, hotel occupancy in Jonesboro was down 7% to 56.4%. Rates, however, rose close to 5%, reaching $86.74, and RevPAR was down 3% to $48.94.

The low occupancy and RevPAR relate to the fact that supply was up 2% in 2017, while demand was down 6%.

Cari White, chief operating officer of the Jonesboro Regional Chamber of Commerce, previously told Talk Business & Politics the supply numbers could be affected by a convention center project that began in 2017 but was not completed. A separate hotel/convention center project, on the other hand, is scheduled to break ground in February on the Arkansas State University campus.

Hotel construction was up statewide in 2017, especially in Jonesboro, and White said the city is making up lost ground. “It’s probably because we were deficient on hotels for so long,” she said. “Five or seven years ago we didn’t have very many.”

Hotel occupancy was down 1% in Little Rock to 55.3%. ADR was up 2% to $81.74, and RevPAR was up slightly to $45.18. In Northwest Arkansas, occupancy was down 1% to 65%, close to the national average. Daily rates were up 2% to $91.38, and RevPAR was up 1% to $59.38.

Patel previously told Talk Business & Politics the Fayetteville-Rogers-Springdale-Bentonville metro area’s hotel industry, which is largely dependent on corporate meetings, could have been negatively affected by corporate layoffs at Wal-Mart Stores, in addition to poor performance of the University of Arkansas’ Razorbacks football team in the fall.

INDUSTRY EXPECTATIONS
The U.S. hotel industry also set records for supply and demand in 2017, with about 1.87 billion room nights available and 1.23 billion room nights sold.

“Construction activity is on the decline for the first time since 2011, so even as demand growth subsides, the effects on occupancy and rates should be more manageable for hoteliers,” STR’s CEO Hite said in the press release.

This was not the case in Arkansas, which had 47 hotel projects and 4,634 rooms either in the planning stages or under construction in 2017, compared to 41 projects and 4,068 rooms in 2016. Supply increased 2% in Arkansas to 18 million room nights available, while demand decreased a bit (1%) to 9.6 million room nights sold. However, STR projects the overall health of the U.S. economy also will bode well for the hotel industry, and that could positively affect Arkansas’ market.

“Given the tax cut and the stronger GDP growth that is expected, U.S. hotels are in solid position moving through the next year,” Hite said.

In fact, STR projects the U.S. hotel industry will post record-breaking performance levels through 2019, according to its recent Tourism Economics forecast. STR predicts luxury hotels and independently-owned hotels will show the largest increases in occupancy in 2018, while independent hotels also will substantial increases in ADR and RevPAR. The upscale segment is expected to have the lowest rate of RevPAR growth this year.

For 2019, STR and Tourism Economics project the highest overall rate of RevPAR growth will be in the luxury category, while the lowest is projected among upscale and upper midscale chains, though growth is also projected for those categories.

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