Rational Exuberance Rules Hotel Industry

The lodging industry’s exuberance is indeed rational, according to speakers at the seventh annual Hotel Data Conference in Nashville last week. And, living up to the conference’s name, the speakers and panelists backed up their assertions with a wealth of data. During the opening session, Adam Sacks, president of Tourism Economics, noted that consumer spending on U.S. lodging in the last three years is up 25 percent, which is more than double spending on other goods. “GDP and room demand move pretty much in step together and that’s been historically the case,” he said. “But then the last two years, room demand has said, ‘to heck with it’ and has outpaced GDP markedly over this period.”

Sacks highlighted the U.S. market’s strengthened role in the global economy. With the mix of continued low inflation and minimal interest rates, the United States is showing real signs of strength, he said. “Even with the world crumbling down around us, the U.S. is not giving up, the economy is holding its own, and we believe it’ll be driving global growth for the year.”

Picking up where Sacks left off, Steve Hennis, director of STR Analytics, called attention to how the industry is at record levels on nearly every key metric. “Occupied room nights are up 3.3 percent this year, and 14.3 percent above their 2007 peak,” Hennis said. In the U.S., June saw the highest occupancy levels ever (73.1 percent) and the highest room demand ever (109 million rooms). And he doesn’t see the industry at its peak yet. “The current cycle is unique from a supply-and-demand standpoint,” he said, adding that there’s plenty of room for more supply to come online. “We’re still so far below where we were at the prior peak of the cycle.”

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Hennis also added that profits from F&B and group business are still growing. “Compared to the prior peak, transient is well ahead, yet group demand just got back to prior peak levels last October and it’s still growing,” he said. “So maybe group demand isn’t as far behind as we think.”

In the opening panel, Randy Smith, STR’s chairman and cofounder, summed up the state of the industry this way: “To have the six metrics we track hitting record levels is something I haven’t seen in my 40 years. I really think the best times are still in front of us. I think we’re good through the end of 2016.” During the same panel, Tom Corcoran, chairman of FelCor Lodging Trust, said, “A lot of people are trying to look to the other side of the mountain, but there’s a ton of reasons to feel continuously good. We’ve got a long ways to go; enjoy it.”