D.C. Hotel Performance Down Slightly From Last Year, But Projected To Surge In 2019

The performance of D.C.’s hospitality market was down through the first half of 2018, largely due to inauguration weekend skewing the comparison with the prior year, but it is expected to pick up significantly next year.  

The revenue per available room, or RevPAR, for D.C.-area hotels was $120 through the first six months of 2018, according to hotel data firm STR, a 3% drop from last year. The average daily rate was down 2.6% and the occupancy rate was down 0.4%.  

Much of the drop in performance during the first half of this year was attributed to the comparison with January 2017, when the inauguration and Women’s March brought hundreds of thousands of visitors to D.C. More hotel rooms were booked in the D.C. Metro area during the 2017 inauguration weekend than any previous inauguration since 2000. 

“There is a lot going on in this market, it fluctuates so wildly with large events,” STR Senior Vice President of Lodging Insights Jan Freitag said at Destination D.C.’s Marketing Outlook Meeting Tuesday morning. “RevPAR change is lower because last year was so positive, so I’m not super-concerned about that. It’s going to be fine.”  

The drop can also be attributed to the continued boom of new hotel construction. The D.C. area experienced a 1.7% growth in hotel supply during the first half of 2018, outpacing its 1.3% growth in demand. In the central business district, demand grew 2.9%, compared to a 3.7% growth in supply. The large amount of supply may be keeping some performance metrics down compared to last year, but Freitag said it shows developers have confidence in D.C.’s future, and the continued demand growth shows the underlying strength of the market.  

Demand will have to continue to be strong, because the supply growth is not expected to slow down any time soon. The D.C. area currently has 3,108 hotel rooms under construction and another 6,621 rooms in planning.  

Among the hotels scheduled to open soon are the Eaton D.C. in late September, the Hilton D.C. National Mall, formerly the L'Enfant Plaza Hotel, in January, and the Conrad luxury hotel at CityCenterDC in February. The NoMa-Union Market neighborhood will experience significant hospitality growth in the coming years, with the Virgin Hotel, Mob Hotel and The James Hotel all under construction or in planning. 

Continued growth in tourism to D.C. should help create the demand to fill all of those new hotels. D.C. welcomed a record number of visitors last year for the eighth consecutive time, according to Destination D.C. The 20.8 million domestic visitors coming to D.C. in 2017 was up 4.2% from the prior year. The 2 million overseas visitors, a metric that does not include Mexico or Canada, was up 2.5% year over year.  

The drop in hotel performance through the first half of 2018 is expected to be a minor blip rather than a trend, Freitag said. STR projects D.C.’s hotel performance will pick back up in the second half of this year and beyond. It projects the D.C. Metro area will end 2018 with RevPAR up 0.9% from last year, and then 2019’s RevPAR is expected to be up 2.1% from this year. 

A large portion of hotel demand will come from international visitors, and no country sends more people to D.C. than China. Last year, 324,000 visitors came to D.C. from China out of 3.1 million total coming to the U.S. New nonstop flights from Dulles International Airport to Hong Kong could grow that number, Destination D.C. CEO Elliott Ferguson said, and D.C. is also taking active steps to lure more Chinese tourists to the nation's capital. Destination D.C. reached a marketing agreement with WeChat, a Chinese social media and messaging app, and it launched a program to teach local businesses how to make Chinese tourists feel welcome. 

The region does face headwinds in the international travel market, Ferguson said, including rhetoric from President Donald Trump that can cause international travelers to shy away from visiting D.C. and the U.S. as a whole. This has a particularly significant impact when it comes to large international groups choosing where to host major conventions.  

“International groups are saying they’re not considering the U.S. because of the things they’re seeing and hearing on a daily basis on the news,” Ferguson said. “But not all is lost. Some groups are looking at us for 2025. Things might change in terms of politics by then, we’re hoping, and that perspective will change and groups will continue to look at D.C. as a destination.”