THE 23RD ANNUAL Lodging Conference got underway Tuesday in Phoenix, Arizona, with most of the 1,800 people in attendance agreeing the robust performance of the U.S. hotel industry will continue on a positive trajectory over the next couple of years.
The conference takes place as the U.S. economy marks its ninth year of expansion; the third longest expansion in 63 years, said economist Bernard Baumohl with the Economic Outlook Group in Princeton, N.J. If the pace continues past June 2019, it will be the longest expansion period since 1954, the first year economic data was recorded.
Several industry prognosticators said although there is concern that too much supply is coming on board this year through 2019, the pace of new rooms being added is still below the peak reached in 2008, the year the real estate market crashed. Demand will continue to outpace new supply, they said.
JP Ford, senior vice president of Lodging Econometrics, said 609,000 rooms are in the pipeline with 112,000 expected to open this year; 131,000 in line to open in 2018; and 135,000 in 2019. Supply’s average rate of growth over the three years is 2.4 percent.
STR’s Ali Hoyt, senior director of consulting and analytics, said demand will grow by 2 percent this year and 1.9 percent next year. Average occupancy will remain flat at zero growth this year and will decline by 0.2 percent in 2018, but that negative will be muted by increases in ADR of 2.3 percent in 2017 and 2.5 percent in 2018, all leading to average RevPAR growth of 2.3 percent this year and next.
Hoyt said the industry has reached peak occupancy, and analysts expect rate to be higher, as much as 4.5 percent, but there is clearly a lack of transient pricing power when you look at the 4.4 percent growth in October 2015 compared to the 1.5 percent increase in October 2016 and 2017.
Mark Woodworth with CBRE America’s Hotel Research said, looking at its top 60 markets for 2018, occupancy will be down in 48 of those markets, creating an average of 65.7 percent or a 0.1 percent hike across the board compared to this year. ADR will be $130.11 next year, up 2.3 percent over this year, and RevPAR will be up 2.4 percent to $85.43, with just seven markets lagging.
Although occupancy has plateaued, tomorrow will be better than yesterday, said Woodworth.
That is as long as the U.S. economy continues on a positive business cycle, Baumohl said. The last economic cycle peaked in December 2007; and the recession ended in June 2009.
He outlined three potential paths ahead for the U.S. economy and real GDP growth in 2018.
The first scenario is Congress passing extensive tax and spending reforms, which would increase the GDP by at least 3 percent to as high as 6 percent.
Scenario B is Congress passing a modest fiscal plan and geopolitical conditions grow tenuous, thereby generating GDP growth of 2 percent to 3 percent.
And the third path is an economic recession as the presidency is crippled by lack of legislative progress, an all-out trade war and major geopolitical eruption.
Baumohl said he expects the second scenario the most probable of the three. Consumers will be the main engine of growth in 2018 and 2019 in the overall economy, including the hotel sector. The unemployment rate will hover around 4.2 percent, and employers will fill 6 million jobs a month. Purchasing power will increase as employers also will increase wages faster than the rate of inflation and personal taxes are reduced.
A lot rides on whom President Trump will name as the new head of the U.S. Federal Reserve – someone who takes the current tack of low interest rate growth or one who aggressively increases both short-term and long-term rates.
In the hotel industry, a panel of CEOs agreed more mergers and acquisitions will take place in 2018 and more brands will be introduced as companies seek to ramp up their scale to provide consumers with more choices and investors and developers with more options.
Geoff Ballotti, president and CEO of Wyndham Hotel Group, said franchisers are mainly distributors of hotel rooms. “It’s not about having too many brands, it’s about distribution. You will hear of many more brands. We are not close to any point of saturation.”
“Scale is important, otherwise it’s really hard to compete,” said David Kong, president and CEO of Best Western Hotels & Resorts. He pointed to Marriott International’s 2016 acquisition of Starwood Hotels & Resorts, which grew Marriott’s brands to more than 30. “Marriott can offer complete solutions to any travel manager at any price point. Each brand attracts a different type of clientele, and that helps all of the brands even more. Small companies will find it difficult to compete; if they don’t grow they will suffer. Consumers want choices.”