NEW YORK—Except for the lack of dramatic growth in average daily rate, the performance of the U.S. hotel industry during the past 18 months has been, by most accounts, solid. That’s what makes Randy Smith, chairman and co-founder of STR, the parent of HotelNewsNow.com, nervous.
Speaking Monday during the 34th Annual New York University International Hospitality Industry Investment Conference at the New York Marriott Marquis, Smith pointed to a trend that, while it looks good on a chart, could be a long-term problem.
“The relationship between (gross domestic product) and hotel demand concerns us,” Smith told the 2,000 conference attendees. “The hotel and GDP growth rates have been closely related over time. The problem is (room demand has) rebounded much quicker than GDP. At some point, this is going to return to the norm.
“We have grown through a very strong period, and it’s going to be difficult for us to continue.”
Smith said the third and fourth quarters of this year pose the biggest issues.
Meanwhile, he said ADR has increased in the Americas and Europe and there’s been a “very strong increase in (revenue per available room) in Asia/Pac.”
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Randy Smith, chairman and co-founder of STR
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He also said seasonally adjusted demand data illustrates how closely the U.S. and Europe follow each other in overall demand trends, even though U.S. hoteliers sell 8 million to 10 million more rooms a month than their European counterparts.
“March was a strong month, but you can see the general downward trend in European demand levels,” he said.
Using seasonally adjusted ADR data, Smith pointed out it’s more expensive for Europeans to come to the U.S. than it is for Americans to travel to Europe.
“We’re going to see a lot of Americans travel to Europe over the next six months—that is one dynamic that’s going to be a slight problem for (U.S. hotels),” Smith said.
All told, the data reveals that the U.S. hotel industry is “in the midst of a rebound, a very strong rebound,” he added.
The best news for hoteliers is there is some upward movement in hotel rates throughout the U.S., according to STR data.
“While demand is starting to stabilize and soften a little bit, we are starting to see some movement in overall room rates,” Smith said. “ADR has always outpaced occupancy, but that wasn’t the case in this rebound. Last month it made the turn, and we will start seeing ADR increases more than occupancy increases.”
Looking forward, Smith presented the company’s latest forecast:
- Supply: +0.5% in 2012, +1.1% in 2013.
- Demand: +2% in 2012, +1.8% in 2013.
- Occupancy: +1.5% in 2012, +0.7% in 2013.
- ADR: +4% in 2012, +4.6% in 2013.
- RevPAR: +5.5% in 2012, +5.4% in 2013.
Smith also revealed for the first time the company’s assessment of estimated total revenue and profitability in 2011. He said the U.S. hotel industry made $137.5 billion in revenue, had gross operating profit of 36.1% and earned pre-tax profits of $21.6 billion—the most since earning $25.8 billion in 2008.
Deal data
Steve Rushmore, president and founder of HVS, provided transactions-related data. He said hotel values will recover to pre-recession levels by 201
3. Values will increase 17% this year, 17% in 2013, 7% in 2014 and 7% in 2015.
The average per-room transaction price will reach $92,000 in 2012, $108,000 in 2013 and $116,000 in 2014, Rushmore predicted.
As for individual markets, Rushmore said the following markets will enjoy the biggest dollar increases in value between 2011 and 2015:
- New York: +$280,000
- Oahu, Hawaii: +$196,000
- Miami: +$161,000
- Chicago: +$120,000
- New Orleans: +$111,000
- Las Vegas: +$103,000
- Boston: +$102,000
- Seattle: +$96,000
- Los Angeles: +$93,000
- Boca Raton, Florida: +$93,000
That equates to the following cities having the highest per-room hotel values come 2015:
- New York: $663,000
- Oahu: $533,000
- San Francisco: $473,000
- Miami: $470,000
- Boston: $397,000
- Los Angeles: $299,000
- Washington: $277,000
- Chicago: $271,000
- Seattle: $253,000
- Austin, Texas: $233,000
Rushmore said it won’t be long before hoteliers will see a shift that indicates it’s a good time to start building hotels.
“Replacement costs are a good indicator of where you will start building or buying hotels,” he said, explaining that when value is above replacement costs, it’s a good building environment and when value is below replacement, it’s a good buying environment.
The HVS founder said capitalization rates are increasing slightly. For full-service properties, the cap rate is 5.6 and for select-service and extended-stay hotels, it is 6.7.
