Recent opinions from HotelNewsNow.com News Editor Jason Freed about Arne Sorenson’s phenomenal hourlong keynote at the 25th annual Hunter Hotel Conference last month provided some insights, but they were off the mark.  My takeaway was completely different, and I applaud Sorenson, the Marriott International president CEO, for being vocal about his concerns the hotel industry faces today.

What I heard from Sorenson were two important points early in his talk (I am paraphrasing):

As per usual during this time of year, 2,500 of our closest friends and industry colleagues descended on the L.A. Live complex for the Americas Lodging Investment Summit to hear about the hotel industry’s performance in the past year, and more importantly, to take the industry players’ collective pulse to understand the mood for 2013 and 2014.

Throughout 2012, we were surprised by the continued demand strength. As the year ended, the number of rooms sold was 3% higher than 2011. So the uncertainty stemming from a wide open (at the time) U.S. election, the European debt crisis and U.S. economic woes, which we at STR (parent company to HotelNewsNow.com) had translated into demand softness (as forecasted at ALIS 2012) did not matter. As one analyst quipped when commenting on our fear of business and leisure travelers staying home: “It turns out, no one told the travelers.”

With 2012 almost behind us, 2013 is coming into focus. Here are some larger trends that will affect the hotel industry and impact revenue per available room.

More new supply
STR, parent company of HotelNewsNow.com, continues to report good (or great, in some markets) RevPAR data, and banks are lending again. The number of rooms in the pipeline is steadily increasing, and we expect to see new hotel openings throughout 2013, mostly in the limited- and select-service categories. A few markets are expected to add multiple new hotels, and their occupancies likely will suffer—New York probably being an exception again. New hotels will force existing hoteliers to rethink their price-value relationship. Unfortunately, in the past that has often meant more discounts. STR expects U.S. supply to grow 0.8% in 2013.
Property level RevPAR impact: Negative

As I tirelessly crisscross the country to speak on the state of the United States hotel industry, my main talking points during 2012 have not changed. If you have not seen me on a friendly neighborhood stage near you, here are the cliff notes: Demand growth plus a lack of new supply equals occupancy increases, which should lead to strong room rate growth.

So far, so good … except it ain’t so.

Part of the fun in our jobs as data guys is to have the ability—and maybe the obligation—to dig deep into the data pile, to establish trends and patterns and then to forecast the future. At all major hotel industry conferences someone from STR, the parent company of HotelNewsNow.com, is being asked to stand up and present our version of the crystal ball and to interpret and explain where we see the industry going. Our founder Randy Smith will do so once again at the NYU International Hospitality Industry Investment Conference in June at the New York Marriott Marquis. All of our forecasts are based on our unique database of historic performance results that we gather from the majority of U.S. hotels. We combine this with insights from our partners at Tourism Economics, which is part of the larger macroeconomic forecasting firm Oxford Economics. 

Our 2012 Forecast
The continued macroeconomic recovery has resulted in some heady demand increases, and the U.S. lodging industry is poised to sell more rooms this year than ever before in history—just like it did in 2011. Based on the sound supply and demand fundamentals and nationwide occupancies of more than 60%, we increased our revenue-per-available-room forecast for the year to 5.5%. RevPAR growth for the remainder of the year will be fueled by average-daily-rate increases of approximately 4% and demand increases of approximately 2%, coupled with negligible supply growth of around 0.5%.

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
—Winston Churchill

One common question from the investment community to us here at STR is: “So, how long will this ride last?” In other words, given the favorable supply and demand fundamentals for the U.S. hotel industry, how long will we see positive average-daily-rate and revenue-per-available-room growth?