Editor’s Note: Jan Freitag jumps ahead to the last day of 2011 to assess what kind of year it was for hotels.
As 2011 begins, a number of our clients are curious about the trends that we are expecting for the new year. Looking at the crystal ball is a favorite past time for forecasters and fellow data gatherers. So what are we expecting for the year, and how will we look back at 2011 once it is finally over? Here are some predictions:
The Year ADR Soared
2010 was just the precursor to better things to come. Whereas average daily rate (ADR) growth only became reality in the third and fourth quarters of 2010, we actually should be able to record a full year of rate growth in 2011. Rate growth will remain tepid in the first quarter but as the year progresses, the demand increases that shaped 2010 will continue (although not at such high levels) giving hoteliers the confidence to increase rates accordingly.
New Hotels Are Scarce
The building boom of 2008 and 2009, fueled by the strong industry performance of 2004 through 2007, has finally ebbed. The inability of owners to finance properties with a substantial debt portion forces them to secure larger equity stakes that make the required returns much harder to achieve. This, in turn, leads to fewer hotels in the planning and under construction stages. The hotels that can be financed are often limited service hotels, developed by local owners with the help of local banks. It will take the industry a few years until we see supply growth rate return to the 20-year average of 2 percent growth that was present between 1989 and 2009.
Meetings: Top 25 Markets Rule
As meeting planners ponder how to best deliver value to their attendees, the trend for shorter meetings will make easy access to meeting venues a necessity. The top 25 largest lodging markets and Las Vegas, with well-developed airlift and meeting space, will win out over harder-to-get-to locations. Meeting durations will shrink and attendees will require short flight times, so major hubs and markets are at a clear advantage.
The Year of Luxury Hotels (Again)
High-end hotels continued their rebound with a vengeance in 2011. Strong rate increases, fueled by increased demand numbers and lack of new supply increased profitability at the higher end. Luxury hotels once again played the role of performance trendsetters and other chain-affiliated hotels will take their cues from the improved luxury ADR and increase their 2011 rates accordingly to not let the ADR gap grow too wide.
Finally, A Seller’s Market
The perfect storm of decreased demand and increased supply of the last few years gave meeting planners and other guests the ability to negotiate hard for price and additional value. The new reality is that hoteliers are firmly in the driver’s seat to make their own pricing decisions again.
The Year of the “Groupon Sale”
The question that will remain is if the continued focus on discounting of the last few years can be reversed. 2011 will show if hotel guests are reluctant to pay full fare again and are instead only waiting for the latest bargains through sites such as Groupon, Jetsetter, RueLaLa, and others. Those new customer acquisition tools need to be carefully evaluated in an environment in which hotel operators hold most of the cards anyways.
Jan D. Freitag is vice president of global development at Smith Travel Research.