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Hotel performance slows in US oil, gas tracts

June 6, 2015 Statistics & Trends No Comments Print Print Email Email

U.S. hotel supply has been significantly supplemented by major oil and gas tracts over the past half-decade, but performance in these markets has slowed as U.S. oil prices have declined, according to an analysis by STR Analytics.http://www.lagunaphuketgolf.com/

Since 2010, hotel development in oil and gas market tracts have accounted for 25 percent of new supply that has entered the industry. The oil and gas market tracts also have accounted for 47 percent of Midscale properties and 44.5 percent of Economy hotels developed in the U.S. during that time.

“As most people already know, the growth of the U.S. oil and gas industry over the past few years has been a boon to the hotel industry, particularly in remote locations where the hotel markets were previously small to negligible,” said Steve Hennis, director at STR Analytics.

Among prominent oil submarkets, the North Dakota area has reported the largest supply increase since 2010, up 73.4 percent. Midland/Odessa, Texas (+44.4 percent) ranks second followed by the Texas South Area (+37.7 percent) and Bismarck, North Dakota (+36.9 percent).

More supply also is reported in the pipeline with nearly 11,000 rooms In Construction in the top 20 oil and gas tracts as well as another 24,000 rooms in planning stages.

Revenue-per-available-room growth in these tracts outpaced RevPAR growth in the U.S. for most of 2011, all of 2012 and roughly half of 2013. Since the middle months of 2013, RevPAR growth in the top 20 oil and gas tracts has lagged the overall growth in the U.S.

Thus far in 2015, 12-month running RevPAR growth in the U.S. has remained above 8.0 percent. During the same four months, that metric in the top 20 oil and gas tracts has remained below 8.0 percent. Most recently in April 2015, 12-month running RevPAR growth in the top 20 oil and gas tracts fell below 6.0 percent.

According to Hennis, occupancy began to slide in the top 20 oil and gas tracts in mid-2013 as supply growth started to outpace demand growth. RevPAR performance also began to lag as a result. In late 2014, crude oil prices decreased from more than US$100 to below US$60.

“With the price of oil at that level, the profitability of many fracking operations comes into question,” Hennis said. “The US$60 mark has been noted by many analysts as the reported break-even point for fracking.”

Recently, demand growth has also dipped in the top 20 oil-dependent tracts in the U.S. In these submarkets, STR reported demand declines of 0.3 percent and 3.5 percent for March and April, respectively. During those months, U.S. oil production growth has plateaued between 9.3 million and 9.4 million barrels per day. The North Dakota Area tract experienced the largest hotel demand decline in April 2015, dropping 9.0 percent.

The demand declines come after several years of steady demand increases in major market tracts driven by the oil and gas sector, according to Hennis.

“It is too early to tell if this is a shift in the trend, but it may be a possible warning sign of the potential fallout in these regions if oil prices remain low,” Hennis said.

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