As this year’s Lodging Conference theme suggests, the hotel industry is “Climbing High” with record demand, strong operating metrics, an abundance of capital, and high deal volume. Data firm experts and hotel executives who took the stage on day one of the conference—which drew nearly 1,700 people to Phoenix this week—agreed it’s a great time to be in the industry.
Mark Woodworth, senior managing director at PKF-HR, said the fundamentals are solid across the vast majority of markets, and elevated industry growth will persist comfortably through 2016 and likely beyond. PKF forecasts occupancy of 65.8 percent in 2015 and 66.1 percent in 2016. In turn, high occupancy levels will provide the leverage needed to achieve large real average daily rate (ADR) increases for the next two to three years. “Rates continue to get better by a lot, yet aren’t growing quite as much as underlying industry fundamentals would suggest that they should be. But again, those are fairly strong,” Woodworth said.
In August, revenue per available room (RevPAR) growth slowed to 2.2 percent, occupancy dropped 1.4 percent, and room demand fell for the first time in 69 months by 0.3 percent, but that doesn’t mean it’s the beginning of the end, Jan Freitag, SVP of STR, stressed to the audience. Year-to-date ADR growth is 4.8 percent, he said, and total demand in August was just below 110 million room nights—the fourth highest room-demand month ever. Twelve-month moving average statistics, including occupancy, ADR, RevPAR, and total rooms revenue, are at all-time highs, he added. STR predicts RevPAR growth of 6.8 percent in 2015.
“We’re suggesting very healthy fundamentals this year and next year driven by ADR growth,” Freitag said. “There’s a smidge of occupancy growth in there, which may vary in specific markets where new supply comes up, but overall very healthy growth for the foreseeable future.”
According to Bernard Baumohl, chief global economist of The Economic Outlook Group, the economic slowdown and equity bust in China will have repercussions on emerging countries and gyrations in financial markets will drag global economic growth down to an estimated 3 percent for 2016. However, these factors will not jeopardize the U.S. economy in the next couple of years, he added.
“While the world is facing its greatest challenge since 2008, I think the U.S. is officially insulated from that economic mess to continue to grow at 2.5 percent,” Baumohl said. “While that’s not spectacular, it does mean the U.S. economy is moving forward, it means more progress, and it also means that the U.S. is going to be one of the few countries that is truly a bright spot in the global economy.”
When emerging economies stumble, certain U.S. markets will be affected, but Simon Turner, president of global development at Starwood Hotels & Resorts, said fundamentals feel really solid overall. “There may be a black swan event out there that’s going to impact us, but on the whole, in our conversations with our hotels and owners, people feel like we have a couple of good years ahead of us,” Turner said.
While hotel industry growth is closely correlated to GDP, it’s hard to predict what will happen a few years out, said Liam Brown, president of U.S. and Canada select service and extended stay lodging and owner and franchise services for Marriott International. “All you can do is look at the current fundamentals and what the data is showing today,” Brown said. “Remember, we never see the obstacles coming because we’re always driving through the rearview mirror in terms of statistics.”
J.P. Ford, SVP of Lodging Econometrics, said he is optimistic and bullish on the industry, given good disciplined growth. In Q2 2015, all three stages of the construction pipeline have experienced year-over-year growth in both projects and rooms, he said. In total, there are 4,038 projects in the pipeline and 507,221 rooms. This is still below the peak of the last cycle that occurred in Q2 2008, however, when there were more than 5,800 projects and 785,000 rooms in the pipeline.
In terms of the supply and demand balance, Roger Bloss, president and CEO of Vantage Hospitality Group, feels the industry has another two to three years of prime time to build. “We’re seeing construction costs rising pretty significantly, but more important the land is becoming the most difficult part in good locations,” Bloss said. “It’s all that balance—is it the right land and can you build it at the right price, versus can you renovate it to something that will be competitive in today’s new construction industry.”
Photo credit: Gary Kane/Lodging Conference
