From Pebblebrook Hotel CEO Jon Bortz perspective, corporate group demand remained healthy in the second quarter, with strong associated food and beverage and other revenues spend. “Because so much overall group is contracted well in advance, industry-wide group rate has been very positive, increasing 2.1% in the second quarter,” he said on the firm’s q2 earnings call.
He did note that that was down from the first quarter’s group rate growth of an even 3%. “Industry-wide transient demand on the other hand has been much more positive than group this year, and benefited from the holiday shift in the second quarter,” he said. “Industry-wide transient demand grew 2.9% in Q2 as compared to Q1’s transient demand growth of 0.3%. Transient rate growth for the industry has been a little more challenging due to the softer overall group base, with transient rate up by an estimated 0.7% in the second quarter, which was not as positive as the first quarter’s transient rate growth of 1.2%.”
Weekday demand rate growth and RevPAR growth continue to meaningfully outperform weekends, indicating that business travel remains healthy, yet both business travel and leisure travel demand growth rates decelerated in the second quarter compared to the first quarter, particularly in June, he explained on the call. “We believe this deceleration is primarily a result of greater uncertainty in the world due to significant trade disputes and disruption and overall slowdown in global growth, and a slowdown in U.S. GDP growth.”
At the margin, he said that businesses are being a little more cautious with travel, other spending and investment decision. “We expect these weaker trends to continue in the third quarter or at least until the trade disputes are resolved in a positive fashion, or GDP otherwise re-accelerates. We’re not currently anticipating recession anytime soon as we believe GDP growth will continue at modest levels, employment growth continues in a positive direction, the consumer is in great financial shape, monetary policy is turning more supportive and corporate profits remain strong, albeit with a significantly slower rate of growth this year.”
For Pebblebrook, the third quarter was already shaping up as our slowest quarter, primarily due to softer convention calendars, including in San Francisco and that continues to be the case, he explained. “Similar to the industry trends, we’ve also experienced deceleration in both leisure and business travel growth rates throughout our portfolio. And to react to that, we’ve lowered our RevPAR range for the year by 50 basis points at the midpoint with the primary negative impact in the third quarter. Our fourth quarter continues to look positive as our group pace has strengthened even more than our transient pace has softened. Both continue to be very positive with total revenue pace up by 14.2% as of the end of June with room nights up over 9% and ADR up 4.5%.”