Understanding your STR reports: Hotel supply, demand and the development pipeline

Continuing this educational series on STR reports, we show the importance of taking a step back and expanding your knowledge of the market as an added tool for understanding the operating conditions around your properties. After looking at the three main KPIs, periods and percentage changes in previous pieces , we now focus on the raw data points that inform decisions in the fast-paced hotel sector: supply, demand and revenue. We also outline the various stages of the hotel pipeline, which is ever so important in investment decisions.  

Hotel Supply = The number of rooms in a hotel or geographic area multiplied by the number of days in a specified time period 

Hotel Demand = Number of rooms sold in a specified time period (excludes complimentary rooms)

Hotel Revenue = Total room revenue generated from guestroom rentals or sales

Market data is calculated by aggregating supply, demand and revenue from all open and participating hotels in that specific market/submarket that belong to the designated class/classes.

Hotels that are open but did not submit data for a specific period will be included from a supply perspective, while demand and revenue will be calculated to match KPIs for open hotels. Hotels recorded as closed for more than a calendar month will not be included in the calculation (standard methodology).

Hotel Closure – STR enters a property as “closed” if the property is closed for a full calendar month. There are temporary closures (i.e., renovation, natural disaster, pandemic, business reason, fire, etc.) and permanent closures (i.e., pandemic, business reason, fire, change of use, demolition, etc.). Full month closures will be reflected in our system, and reports show a room count of “0.” For partial month closures, supply will not be affected.

The industry data calculation uses sample data and scales up to census. That calculation is as follows: 

One always needs to keep in mind that adding up markets will not equal a total country (same for submarket to market, etc.). The same is true in attempting to add classes to produce a market or submarket number.

When using total-room-inventory  (TRI) methodology, the supply from both open and closed properties will be takin into consideration in the KPI calculation.

Hotel Pipeline

Unconfirmed/Proposed: Potential projects that remain unconfirmed at this time. STR is unable to verify the existence of these projects through a corporate chain feed or other verifiable source.

Planning: Confirmed, under contract projects where construction will begin in more than 13 months.

Final Planning: Confirmed, under contract projects where construction will begin within the next 12 months.

In Construction: Vertical construction on the physical building has begun. This does not include construction on any subgrade structures including, but not limited to, parking garages, underground supports/footers or any other type of subgrade construction.

Deferred: Activity on the project has stopped but may resume within the next 12 months.

STR also records conversions and renovations that could affect hotel room supply in a market. 

The importance of the pipeline is obvious. New openings in a saturated market may pressure occupancy levels and room prices. It is important to note which classes new properties fall under. Understanding the future supply in the pipeline allows hotels to develop strategies for maintaining or improving their position.

On a broader scale, investors, owners, banks analyze the pipeline to define CAP and opportunities for market development by correlating different factors such as supply growth, pipeline, compression, costs, and profitability.

Project completion time, as seen during the pandemic, depends on micro and macroeconomic factors, making it important to place the different projects in relation to each market.