While most types of real estate faced just one severe recession since 2000, hotels have seen a double whammy including the recession of 2008 and 2009 and the tragedy of 911 in 2001, which resulted in both personal and business travel almost disappearing for 18 months. Since 2008, there has been an equivalent drought of new construction in the hotel and hospitality segment. This void, however, is finally being changed as new hotel construction, albeit modest, is finally taking place.
Several differing sources are pointing to renewed—but slow—growth in the hotel segment in the coming 30 months.
From a construction and development perspective, Lodging Econometrics (LE), a “leading lodging industry consulting partner for global real estate intelligence,” forecasts 739 new hotel openings in 2015, with 82,587 rooms, which equates to a 1.6 percent increase in total rooms available. In comparison, 1,341 properties were brought online in 2008, with 154,258 rooms, while 2011 saw just 346 hotels with 37,193 rooms.
LE compared Q2 2013 to Q2 2012:
- 646 projects are under construction – up 23 percent
- Rooms now under construction total 81,531 – up 22 percent
- 1,116 new projects are expected to commence construction in the next 12 months containing 128,861 rooms – year-over-year gains of 36 and 38 percent, respectively
- 1,060 projects are in early planning stages with 139,759 rooms
- Smaller projects (less than 200 rooms) make up 91 percent of the pipeline
- Of the 2,822 projects in the pipeline, 42 are casinos, 25 are luxury properties, 79 are upper upscale and 661 are upscale
Revenues, in both rates and occupancy are reported by TravelClick, which “provides innovative solutions for hotels around the globe that increase revenue, reduce cost, and improve performance.” TravelClick’s July summary reported:
- Reservations for the four quarter period commencing Q3 2013 are up 2.3 percent vs. the same period a year ago
- 15 of the top 25 North American markets show reservations were up in July 2013 compared to the prior month
- Committed room nights are up 1.3 percent compared to the same period a year ago
- While Q3 2013 bookings are down 1.7 percent compared to Q3 2012, Q1 2014 is up 6.7 percent
- Room night bookings are up 4.9 percent year-over-year
- Business demand is up 5 percent while leisure demand is up 4.5 percent
Average Daily Rate (ADR)
- 2013 bookings ADR is up 3.6 percent and is increasing in 23 of 25 North American markets
- Compared to a year ago, Group ADR is up 1.5 percent, Transient +4.5 percent, Business +4.2 percent and Leisure +4.5 percent
PKF Hospitality Research, whose “Clients…. are the decision-makers in the hospitality and tourism industries: owners and investors, developers and lenders, partnerships and corporations, financial institutions, insurance companies, public agencies, and municipal, state, and national governments,” has a vast array of hospitality reports and data, including specifics on 50 markets in the United States. In PKF’s Hotel Budget Guidance for 2014 press release, they forecast the following:
- 3.3 percent increase in lodging demand with an associated 1.0 percent increase in total supply
- 2014 national occupancy level of 63.8 percent – the second greatest occupancy since 1997
- Upper-tier hotels are most likely to be 70 percent or more through 2017
Rates and Profits
- While ADR has been muted in recent years, PKF sees 5.4 to 6.4 percent growth rates from 2014 through 2016
- The revenue per available room (RevPAR) is forecast to result in 10 percent and greater increases in unit-level Net Operating Income (NOI)
Local Markets 2014 – Across PKF’s 50 Markets Tracked
- 27 markets will see supply growth of 1 percent or less
- 33 markets should see occupancy levels at or better than prerecession levels
- Two markets are forecast to see a decline in demand, and five markets will see occupancy declines
- 39 markets should see RevPAR at or greater than prerecession levels
- 17 markets should see ADR increases of 6 percent or greater
- RevPAR growth of 7 percent or more should be seen in 20 markets
To see the executive summary of LE’s latest 2015 forecast, click http://www.lodgingeconometrics.com/2q2013-united-states-executive-summary/
To read TravelClick’s past market summary reports click http://www.travelclick.com/en/industry-insights/hotelperformance-outlook-listing
To access PKFs reports and news releases click http://www.pkfc.com/en/pkfhome/FreeStuff/NewsReleases/
As the economy continues to improve, hotels are tracking likewise.
The bottom line? Odds are you will pay more in coming years and in some markets, a tight supply of rooms may challenge travelers at certain times. Hotel values will continue to climb. New construction will continue.
All good news.