Fourth quarter lodging fundamentals came in just below expectations, with year-over-year RevPAR growth of 2.4 percent, driven by an average daily rate increase of 2.0 percent. Despite expectations otherwise, occupancy levels increased marginally (0.4 percent), surprising many with continued growth at this stage in the lodging cycle. Growth in occupancy levels was supported by strong demand increases in the contract segment, while transient and group demand declined modestly on a year-over-year basis. Despite concerns over the impact from the trade tensions with China and rising construction/labor costs, the US lodging industry ended 2018 on solid footing, with occupancy reaching levels not seen since 1981.0

Looking ahead to 2019, our US lodging outlook remains stable, driven by steady economic fundamentals, including a continued increase in consumer spending; increasing, albeit decelerating business investment; and relatively strong consumer confidence. Lodging supply is expected to increase at a rate close to the long-term average; however, tightening financing conditions and further increasing labor/construction costs may cause a drag on supply growth. Overall, RevPAR in 2019 is expected to increase at a decelerating pace, driven exclusively by growth in ADR. Counter-balances to this outlook to be watchful of include any negative near-term impact from the partial US government shutdown, continued trade tensions and effects from tariff-rate implementation, political uncertainty amid partisanship, and increasing interest rates.

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