A new report from Morgan Stanley Research suggests that alternative accommodations providers like Airbnb and HomeAway might be having an impact on hotel business in the top 25 lodging markets in the U.S. as defined by STR.
Analysts reviewed STR data regarding compression nights, or high-demand nights where market-wide occupancy levels are 95% or more. They found that this year there have been fewer compression nights than in 2015, after years of increasing compression nights, year over year.
Through May 28, 2016, there have been 64 compression nights, a 24% decrease from 2015. Last year, during the same period, there were 84 compression nights.
“The number of compression nights in the top 25 markets was continuing to grow in 2015,” said Thomas Allen, executive director of equity research for Morgan Stanley and one of the report’s authors. “It suggested to us that the alternative accommodations weren’t having as much of an impact then. But when we updated the data through May 28, we saw that the number of compression nights in top markets is down 24% year over year.”
In 2014, the number of high-demand nights was 2.5 times the peak number from 2007, and by January 2016, the number of compression nights had grown 11% in the year.
Average daily rates in these markets, however, appear to remain steady, according to the report. Analysis of compression night versus regular night premiums by market since 2006 has shown the average premium has stayed relatively stable at around 25%. Last year, the average premium was 26%, and year to date, the average premium is also 26%. In fact, comparing year-to-date 2016 to the same period in 2015, the premium has actually improved from 23% to 26%.
What Does This All Mean?
It’s probably too soon to tell whether or not alternative accommodations providers are actually having a direct impact on the number of compression nights in major markets.
But there’s an argument to be made in support of that assumption, given the fact that hotel supply is more or less fixed, whereas the supply for alternative accommodations is much more fluid and flexible. And therefore, it can respond a lot more quickly to accommodation needs for dates when there’s a big event like the Super Bowl. Although if this year’s Super Bowl was any example, it seems that alternative accommodation providers who tried to take advantage of high demand by increasing their prices didn’t fare so well.
And while Morgan Stanley’s analysts didn’t find any negative impact on hotel rates during compression nights, there have been instances where a big event did have an impact on hotel prices. Researchers at Boston University found that hotel rates during South by Southwest declined as Airbnb’s popularity grew, even though attendance for the annual event has grown over time.
Another big factor impacting the number compression nights involves the number of city-wide conventions, meetings, and events taking place in that city. The fewer the events, the fewer compression nights.
In their first quarter earnings calls for 2016, a number of hotel CEOs said that while some markets were weaker than others for meetings business, meeting business, overall, was fairly healthy, albeit impacted by the earlier Easter holiday. Cities that fared particularly well in terms of meeting business in the first quarter included Los Angeles and San Francisco, while cities like New York and Houston did not.
Overall, hospitality CEOs delivered positive outlooks on their respective meeting business for the rest of 2016, so it may be that compression nights will reach the same levels as they were in 2015 by year’s end.
Another possible factor that could impact the number of compression nights is a city’s hotel supply, too. But in examining data from STR comparing the number of existing rooms from January 2016 to April 2016, it’s clear there isn’t much fluctuation in the number of rooms available in those top 25 markets. However, some of these markets, including New York City, Phoenix, and Tampa, to name a few, are seeing increases in their hotel construction pipelines, meaning that as more rooms open up, the number of compression nights in those cities may naturally decrease as well.