All in all, the hospitality industry in the United States is performing remarkably well given that during the recent Great Recession it experienced some of its worst years since World War II. There are more than 4.9 million* hotel rooms available in the U.S., according to STR, parent company of HotelNewsNow.com. There is no question guestroom supply is abundant in the U.S, and over building in the past has intermittently hindered industry operating performance.
The good news is that because of the recent economic downturn, there are fewer planned developments in the construction pipeline. This factor, coupled with recent growth in overall room demand, has resulted in improved industry-wide occupancy levels as such occupancy levels are slowly recovering from the depths experienced during 2009 and 2010. The 2012 projected occupancy for the U.S. is expected to slightly exceed 61%, which will reflect a substantial increase from the approximately 54.5% experienced in 2009—the low point of the recent recession—yet still one to two points less than had been experienced in the years immediately preceding 2008.
According to projections from STR**, average daily rates are also on the rebound with projected 2012 ADR to be just more than $106. Not quite back to pre-recession levels, but well above the $98 average experienced in 2009. With new supply being held in check, the U.S. should see a rather sizeable improvement in ADR during 2013 as well. The 2013 forecast has ADR exceeding $111.
All of this contributes to an increase in the all important revenue-per-available-room metric, which truly reflects the lifeblood of the industry. RevPAR for 2012 and 2013 are forecasted to increase 6.5% and 5%, respectively, over the previous year levels. In any method of measurement, the percentages and dollars reflected above truly do represent substantial increases to an improving hotel industry.
While the indicators do look positive and trends are moving in the right direction, obstacles do remain ahead for the industry to overcome. The country, which averted the fiscal cliff, might find itself in a tumultuous situation once again when the debt ceiling approaches.
Added to this equation is the fact that major aspects of the Affordable Care Act will begin to be implemented in 2013 and continue into 2014. The costs associated with Obamacare are predicted to have a substantial impact on small businesses throughout the U.S., including hotels that typically employ fewer than 50 employees and is causing many in the industry to rethink their future options.
As such, transactions have slowed and may continue to remain slow in the coming months ahead. This is not to say that properties are not in demand. In fact, newer, centrally located hotels in major markets, in both the select-service and full-service categories are indeed highly sought after properties. But many investors have found themselves rethinking how they want to proceed in this uncertain economy given the recent elections.
Another problem facing hotel owners and operators going forward is the need for many local, county and state governments to raise revenues to pay for numerous programs and services they intend to implement and/or offer. Traditionally, these revenues have been and will continue to be generated through taxation. Occupancy and bed taxes are a major source of revenues for governments, and of course these taxes are passed on to the traveling public. This, in turn, impacts travel plans for both business and leisure travelers, which will then impact occupancy rates of hotels across the nation.
U.S. travel industry fast facts impact for 2011
According to the U.S. Travel Association:
Direct spending on leisure and business travel by domestic and international travelers in the U.S. averaged $2.2 billion a day, $92.8 million an hour, $1.5 million a minute and $25,778 a second.
As one of America’s largest industries, travel and tourism directly generated $124 billion in tax revenue for local and state governments, as well as the federal government.
$1.9 trillion: Economic output generated by domestic and international visitors (includes $813 billion in direct travel expenditures that spurred an additional $1.1 trillion in other industries).
14.4 million: Jobs supported by travel expenditures (includes 7.5 million directly in the travel industry and 6.9 million in other industries).
2.7%: Percentage of nation’s gross domestic product attributed to travel and tourism.
One out of nine U.S. jobs depend on travel and tourism.
As the U.S. economy continues to improve, room demand generated by corporate business travelers will gradually strengthen and be the leading factor in the industry’s recovery. This sector of room demand growth should begin enabling secondary and tertiary markets to experience a faster rate of recovery than what has been experienced in recent years. Initially, the impact will be felt in terms of strengthening occupancy levels, followed shortly thereafter by more aggressive room rate pricing strategies by property owners.
We also see an opportunity for much improved growth in terms of group meetings. Association and corporate group meetings will lead the recovery for this type of room demand whereas growth in governmental functions will be limited because of budgetary constraints being experienced at all levels of government.
Tour and travel room demand has shown a positive growth during the past two years. The upward trend in disposable per capita income as a result of the economic recovery should continue to manifest into rooms demand growth for this sector of the industry. Furthermore, the ongoing U.S. Federal Reserve fiscal policy of a weak dollar being used to stimulate economic growth will continue to cause an increase in the number of foreign visitor arrivals and generate a positive financial impact on the industry.
Correction, 9 January 2013: In the original version of the article, the number of roomnights available was numbered incorrectly.
Correction, 9 January 2013: In the origianl version of the article, the projections were sourced incorrectly. The graphic has also been updated to reflect the correct source.
Joel W. Hiser is responsible for oversight of the U.S. Horwath HTL hospitality advisory practice and is a member of the international executive committee. He is a highly experienced real estate advisory professional who has been in the industry for over 30 years. He has broad experience in the areas of: commercial property transactions, contract negotiations, hotel asset management, project development and hotel debt financing.
Mark S. Beadle, CHA is a Principal with Horwath HTL. Mr. Beadle is a highly experienced real estate and advisory professional who has dedicated his career to the hospitality industry. During the past 35 years he has developed exceptional expertise in asset acquisition and disposition, asset management, project development, franchise development, management contract analysis, market analysis and unit operations. Before joining Horwath Mr. Beadle had successfully held top management positions for several major hospitality advisory and development firms.
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