There’s a lot to like about the hotel industry today, but pockets of concern remain, data experts said on the opening day of The Lodging Conference.
PHOENIX—Is your business better off, worse off or about the same as it was a year ago?
Mark Woodworth, president of PKF Hospitality Research, asked this simple question to the hundreds gathered for the opening general session of the 19th annual Lodging Conference Wednesday.
The majority didn’t raise their hands, leading Woodworth to joke that perhaps the audience doesn’t know what to think.
Given information relayed by data experts during a breakout session later in the day, that observation from Woodworth might not be far from the truth.
While the numbers behind the hotel industry are largely strong, pockets of concern remain, data experts said during the breakout session titled “Beyond the bullet points: Statistics, trends and analysis.”
Kicking off the session, Vail Brown, VP of global business development and marketing for STR, parent company of Hotel News Now, said rate is driving revenue-per-available-room gains during this portion of the cycle.
She said August average daily rate, after a nearly five-year period, finally reached a new high of $109.20 on a 12-month-moving-average basis.
Still, inflation-adjusted ADRs are not quite back to prior peak, though they are getting closer, she said. Adjusting for inflation, ADR in 2014 will still be $3 below prior peak.
“We need occupancy to recover before rate can really grow,” Woodworth said. Brown said STR forecasts 2014 occupancy to be 63.1%, up from 62.2% this year.
Another caveat for hoteliers is in group demand, she said. Historically, transient demand comprised approximately 56% of a hotel’s overall business, with group demand coming in at 39%, but that gap now is widening. She said at peak, the industry was selling 110.4 million group roomnights in 2007; that figure has dropped by 4.9 million today.
“For the hotels that rely on a good group foundation, this is a big deal,” Brown said.
Global hotel demand is also a good news/bad news tale, Brown said. U.S. demand is on the wane, up 2.4% in July on a 12-month moving average basis. European hotel demand is up 2.3%, but has been rising of late.
In the developing markets of Brazil, Russia, India and China, demand has been in decline since 2010, while the G7 nations (U.S., U.K., Canada, France, Germany, Italy and Japan) have seen slow and steady demand increases. The trend is interesting, Brown said, because BRIC nations have been the focus of many hotel development pushes recently.
For instance, there are 145,800 rooms under construction in China, she said. “With all this new supply coming open, how will they fill rooms with demand leveling off?”
But the good news, for the U.S. industry at least, is that room demand on a 12-month moving average in August reached 1.1 billion—a record, she said.
“One way you can comfortably define recovery is demand,” Woodworth said.
Woodworth relayed good news, at least as it relates to the economy, which should keep hotel demand chugging along.
“It’s not likely the economy is going to tank anytime soon,” he said.
And answering his own question from earlier in the day, he said: “I feel better today than I did one year ago, two years ago.”
Hotel values are benefitting from the positive operating numbers the industry is showing, said Stephen Rushmore, Jr., president and CEO of HVS. The industry surpassed its 2006 values peak this year.
He said values have shown double-digit growth since 2009 and aren’t likely to soften until 2016 or 2017. Lower supply growth, combined with RevPAR growth, will help values keep their momentum.
By 2016, values are forecast by HVS to be just less than $120,000 per key, up from approximately $100,000 per key today.
One variable that might slow value growth, however, is if interest rates continue to climb.
“Rates will pull values down,” Rushmore said.