Hotel executives have differing opinions on where the industry is sitting in the cycle.
REPORT FROM THE U.S.—There’s no topic hotel industry executives enjoy discussing more than where we are in the current cycle. Find out whether people think the industry has passed the peak, the peak is yet to come or it depends on the market.
We’ve passed the peak
Brian Waldman, SVP, Peachtree Hotel Group
“While we are likely in the latter part of the lodging cycle, there are no immediate or severe storms on the horizon for the majority of the country.
“Fundamentals are forecasted to remain strong for the foreseeable future, providing additional runway for growth as long as there are not any unforeseen global shocks. … In past cycles, new supply has exacerbated the impact of any softening whereas in this cycle, new supply has been concentrated in certain markets like New York, Miami and Houston. We believe this will lead to a more muted end of the cycle for many markets and view the volatility as creating investment opportunity for opportunistic, well-capitalized investors.”
Bashar Wali, principal and president, Provenance Hotels
“It’s a self-fulfilling prophecy—every time we begin to get anxious about the end of the good times approaching, that’s when the party breaks up and the fun is over. The fact that we’re having this conversation is a good indicator that we have hit the peak. Generally speaking, though, I believe that the down period we’re approaching will be a gentler correction than the unprecedented, at least in my lifetime, cliff dive we experienced in ’08 and ’09. We are buckling our seat belts and ready for the ride.
“Operators on the ground are seeing rates softening. We are watching our colleagues trade rate for occupancy where for the last five years it was really a rate game. It’s not surprising that we are starting to soften from a demand standpoint. We’ve had almost six years of double digit growth in the major markets—anyone who thinks that can continue is naïve.”
EJ Schanfarber, president and CEO, Alliance Hospitality
“I believe we're at the top of what has proven to be a very robust expansion cycle. New supply is beginning to affect occupancy and yields are trailing as a result of a general slowdown in demand. Modest growth in total revenues in 2017 will be offset by new supply and non-traditional lodging options.”
Charles Oswald, president and COO, HP Hotels
“Our senses may tell us that we’re rounding third base and the peak is around the corner. After all, certain national economic trends and softening RevPAR growth over the last six months seem to suggest so … and we all know that a tree doesn’t grow all the way to the sky.
“However, STR reported that the industry realized a solid 5% RevPAR gain in April, and our internal metrics at HP Hotels tell a continuing positive story for the foreseeable future. … While RevPAR growth has slowed the last few months weighted by performance of the top 25 markets, there isn’t much data to support that doomsday is coming anytime soon.”
Rick Takach, chairman and CEO, Vesta Hospitality
“I think we have definitely passed the peak in terms of RevPAR annual percentage increase, but I believe we will continue to see RevPAR increase at or above inflationary levels for at least this year and next. If supply pipeline continues to expand that will probably put an end to the run by 2018.
“Why is related to some softening of the general economy, loss of consumer confidence, interest rate increase likely coming and the large increase in supply that will be coming on line over the next 18 months. I guess the election will have an impact, but neither candidate is talking about our economy like Obama did in 2008. It also looks like the story is different depending on the market. It is nice to see that the Pacific region is outperforming the rest of the country. Last year, 9.1% RevPAR growth. This year to date through April, 7.8%.”
The peak is yet to come
Bharat Patel, chairman and CEO, Sun Companies
“I don't think we have passed it. Outside of a couple big markets like NYC, the rest of the country is still growing RevPAR—most of which is coming via rate increase. Adjusted RevPAR is still lagging compared to 2007. Pipeline is slowing due to difficulty in getting construction financing, yet demand is increasing at steady pace so I believe we are at somewhat slow pace but still growing. Having said that I think we will continue to experience this well in to 2018.”
Roger Bloss, founder, CEO and president, Vantage Hospitality Group
“Trying to predict the future of the lodging cycle is like trying to predict whether the NBA Championship will end in four games or go as long as seven. Eventually, something will occur to cause the cycle to trail off, but we’re going to run this successful play for as long as we can and hope for an ‘and one!’
“My optimism comes from where it matters most: Vantage’s owners and operators who continue to show great confidence by investing more money into their properties and new builds. As long as shovels keep going into the ground, the banks keep lending and owners feel they have time to recoup their investments, I’m very confident our current cycle will continue to show great promise.”
Ethan Kramer, president, Paramount Hotel Group
“Notwithstanding any unforeseen geopolitical events impacting the U.S., I think we are not at the peak of the cycle in terms of operating performance. RevPAR has grown year-to-date 2016 and is expected to continue the balance of the 2016 and into 2017, albeit at slower rates—but it is still growth. From a transactional perspective, the expected interest rate rise coupled with fewer active buyers pursuing hotel acquisitions, may have marked 2016 as the value peak for the current cycle.”
It depends on the market
Joseph Khairallah, COO, Marcus Hotels & Resorts
“It is a market-by-market situation, as we think some markets are in the bottom of the ninth while others are still in the eighth. Surely, we are seeing slowing in RevPAR increases in many markets, with some decreases in occupancy, while ADR growth is still present. At this point in the cycle, in the transaction market, there is a gap between seller expectations and buyer offers, which has resulted in a year-over-year reduction in transactions this year. …
“Corporate transient demand appears a bit soft in some markets, and supply increases in certain markets are impacting occupancy and rate growth. And as much of the new supply is select service, these properties absorb existing demand, as opposed to inducing demand into their respective markets. Airbnb is cited by some as an impact in certain major urban and resort markets, which we believe exists for some leisure demand, but is less of an impact from the group and corporate transient standpoint.”
Chip Ohlsson, chief development officer, Wyndham Hotel Group
“It’s still a great time to be in the hotel business. Wyndham Hotel Group is actively growing by new construction and conversion. … When we look at the current cycle and see development slowing down in primary markets like New York City, we also need to consider the secondary and tertiary markets. … These markets, including cities like Cincinnati and San Jose, are poised to pop in coming years.”
John Murray, COO and president, Hospitality Properties Trust and EVP, The RMR Group
“Somehow the ‘peak’ has negative connotations, maybe because people think once you reach it you have to go over and head down. I think we may have reached the summit, but it appears to be a slightly uneven plateau with some minor ups and downs but a gentle upward slope. So I see solid performance—maybe not the same year- over-year growth as the past several years but above inflationary level revenue growth at least into 2018.
“Occupancies are high. Our portfolio averaged over 75% in 2015. Rate growth is generally good at these levels. Supply growth is picking up but only to historic average levels this year, slightly higher next but only really bad for those who concentrated their investments in just a few markets like New York; Washington, D.C.; Miami; and Austin. Energy has been a headwind, which will dissipate as we move through 2016, so markets like Texas, Pittsburgh, West Virginia, Oklahoma, etc., will rebound, creating good comps for geographically diverse portfolios. Most importantly, GDP continues to grow and the keys to that are the same things that drive business travel, and when employment is strong, leisure travel is strong, too.”
Don Schappacher, president and CEO, American Hospitality Management
“The current lodging cycle seems somewhat market-type specific. The major markets are likely a bit closer to the end of the cycle. Recent new supply, while performing well, has more of a share-shifting effect on older properties rather than market growth. Secondary and tertiary markets still present some good growth opportunities.
“Markets that offer growth in multiple segments due to new, renewed or enhanced demand generators, where upper tiered franchises are still available, will extend the cycle. University and medical facility expansions, urban redevelopment, industrial growth, arts, music and sports can certainly make these secondary or tertiary markets attractive.”