Room oversupply crimps hoteliers for the 2019 Coachella music festival; supply growth increasingly impacts performance in many major markets

28 May, 2019

California's Coachella Valley Music Festival has grown enormously over the last 20 years, but hotel demand for the event fell in 2019. The event draws popular musicians; however attendance was down for the event's milestone 20th anniversary year.

The two week festival ran from 12-14 and 19-21 April, and according to STR and Hotel News Now, Room demand for the first weekend peaked in 2018 at just over 14,800, a 3.2% increase from 2017, but then fell 0.7% in 2019. The publication stated the submarket also pressured hotel performance in Palm Springs. Since 2016, submarket supply has increased by more than 850 rooms, and average occupancy was down 1.7% year-on-year in 2019.

And hotel supply is projected to keep growing. Hotel News Now reported as of mid-May-2019, 21 hotel properties are currently under construction in the Palm Springs submarket, and of those 21, six are projected to open before next year's festival. That would result in 800 additional rooms, a 5.2% increase in supply. Also included in those 21 new properties is the proposed Moon USA hotel, which according to Hotel News Now, would feature 4,000 rooms and could open in 2022.

There was a positive note across the rest of the US in Apr-2019 with the hotel industry reporting rises across the main performance metrics, versus the same month last year. Occupancy rose 0.3% to 68%, average daily rate (ADR) increased 0.9% to USD131.85 and revenue per available room (RevPAR) rose 1.2% to USD89.67, according to benchmarking specialist STR.

The RevPAR performance was made even more positive by the fact that the Easter calendar shift pulled group occupancy down 6.3%. The industry has now posted year-over-year RevPAR growth for 109 of the past 110 months. The longest overall expansion cycle in industry history lasted 112 months from Dec-1991 through Mar-2001.

"All told, April was very aligned with recent trends," says Jan Freitag, senior VP of lodging insights at STR. "The industry set another monthly demand record but saw a lack of meaningful growth in room rates. The 12-month moving average for ADR growth now stands at 1.9%, the first time since early 2011 that this measure has shown sub-2% growth."

Among the Top 25 Markets in Apr-2019, Minneapolis/St. Paul, Minnesota-Wisconsin, registered the largest jump in RevPAR (+17.1% to USD91.67), driven by the largest increase in ADR (+15.1% to US$134.86). Los Angeles/Long Beach, California, experienced the highest rise in occupancy (+3.2% to 81.8%). Norfolk/Virginia Beach, Virginia, reported the only other double-digit increases in ADR (+10.4% to USD104.29) and RevPAR (+12.8% to USD71.85).

New Orleans, Louisiana, posted the largest decrease in RevPAR (-9.0% to USD126.03), due primarily to the steepest drop in ADR (-6.7% to USD163.77). Detroit, Michigan, saw the largest decrease in occupancy (-6.1% to 64.5%).

Just like the trends identified with accommodation alongside the Coachella music festival, the industry is being warned to keep a close eye on the development pipeline and increased construction activity, even though forecasts predicts a positive performance for the year.

"Supply growth has already impacted performance in many major markets, especially in the limited- and select-service segments, and we do not expect this trend to change. Add that to sometimes steep increases in labour cost, and hoteliers are feeling a lot of pressure on their bottom line," warned Ms Freitag.