Forecasts point to strong 2016 for hotels
02 FEBRUARY 2016 7:42 AM
Hotel industry analysts at the 2016 Americas Lodging Investment Summit said revenue growth will slow but could remain strong for 2016 and beyond.
LOS ANGELES—Wall Street isn’t feeling great about hotels at the moment, but that doesn’t mean you shouldn’t. That was the overarching message from the “Let the Numbers Speak” panel during the first day of the 2016 Americas Lodging Investment Summit.
Jan Freitag, SVP of lodging insights for STR, HNN’s parent company, said the industry is fundamentally strong, but the markets are responding to pessimism from New York City-focused analysts.
“A lot of people are focusing on New York City,” he said. “And New York has had a not-so-good year, after four years of (84%-plus) occupancy.”
Freitag noted that lagging markets like New York City and Houston managed to drag down performance across the country. Revenue per available room, for example, grew 6.3% in the United States during 2015, but grew 6.9% excluding those two markets.
Arthur Adler, MD and CEO of the Americas for Jones Lang LaSalle, similarly warned that stock market performance and industry performance are not one and the same.
“The stock market is not the economy, and it certainly isn’t (the same as) lodging industry fundamentals,” he said.
2016 revenue projections
While the panelists agreed that the industry could be at or near its peak growth rate for the current cycle, that doesn’t mean hoteliers should be preparing for a steep performance drop in the near future.
After a year of strong RevPAR growth, the panelists projected slower, but still substantial growth for 2016 and beyond.
Freitag said STR is projecting 5% RevPAR growth for 2016 and 4.5% for 2017. At the same time, occupancy is expected to grow 0.6% in 2016 and 0.2% in 2017, while average daily rates would grow by 4.4% and 4.3%, respectively.
Mark Woodworth, president of PKF Hospitality Research, said his company expects 5.5% RevPAR growth in 2016 and 5.6% in 2017. Woodworth also expects ADR to grow 5.2% in 2016 and 5.6% in 2017.
“We do think we are at the peak right now in terms of industry performance,” Woodworth said. “And critically, we think we’re going to stay at the peak.”
Adler said that 2016 should also be a good year for transactions, even with real estate investment trusts taking a step back. He said private equity will be key in driving acquisitions.
“What REITs are doing now is investing in their own stocks,” Adler said. “But private equity funds raised twice as much capital in the second half of 2015 as the second half of 2014.”
Adler said he remains optimistic in part because he expects more overseas capital to be drawn to the U.S. hotel industry and interest rates will remain “moderate.”
The state of supply and demand
One of the biggest concerns surrounding the industry and its future performance, according to the panelists, are perceptions of worsening supply-demand dynamics, but those concerns might be unfounded in the short term.
Freitag noted that supply is expected to grow 1.7% in 2016, short of both the year’s projected demand growth of 2.3% and the long-term average for supply growth. STR is projecting 1.9% supply growth in 2017 along with 2.1% for demand.
He did mention, though, that supply growth has been disproportionately focused on select-service properties, which could indicate issues in what he described as “the workhorses of publicly traded companies.”
“But overall, the topline numbers are fine,” Freitag said.
Woodworth said PKF Hospitality Research is projecting 1.8% supply growth in 2016, along with 2.1% demand growth, and both 2.3% supply and demand growth in 2017.