The Economic Impact of Meetings — and an Improving U.S. Hotel Market
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Meetings and the lodging and hospitality sector are major industries in the U.S. Several recent reports put together a compelling picture of the economic impact of meetings and the ongoing recovery in the hospitality segment.
Successful Meetings reported a summary that cataloged the jobs created by meetings from the Convention Industry Council from a 2011 survey.
For the purpose of the survey, they used the definition of a meeting from the United Nation’s World Tourism Organization including:
- Meeting lasting a minimum of four hours
- At least 10 participants
- Held in a contracted venue in the U.S.
In the U.S., meetings as defined above support 1.7 million jobs (that is 1.3 percent of all jobs in the country). In 2009, direct spending for meetings was $119 billion
Successful Meetings reports the top 10 list of jobs supporting the meetings industry as follows:
To read the entire executive summary of the Conventional Industry Council’s Survey click here.
Hospitality and Lodging Market Improving (Read That as Positioned Well for Four-Years of Growth)
Business Travel news reports that U.S. hotel average daily rates (ADRs) in October were up 4.2 percent with occupancy rates at 64.3 percent—a gain of 2.4 percent– data provided by STR Global. They found that the three largest increases in ADRs year-over-year included New Orleans (up 11.3 percent), San Francisco (up 9.6 percent) and Chicago (up 8.4 percent).
The outlook for hotels is literally stellar. MeetingsFocus.com just released a summary of PKF Hospitality Research’s December 2012 Hotel Horizons, an econometrically driven research report of 50 markets and the U.S. including five years each of historical data and forecasts. To see more detail on this high-quality hospitality report click here. PKF is a premier hospitality and tourism consulting company offering an array of services to industry and governments.
The Meeting Focus summary of the PKF report included these forecasts and findings:
- Improvement continues in lodging demand, occupancy rates, average daily rates (ADR), and revenue per available room (RevPAR) and is anticipated to grow through 2016
- RevPAR projected growth is 7.2 percent compound average annually, more than double the long-run historical average. This impressive rate is anticipated to be sustained for the next four years
- No significant additions of hotel and resort properties are in the hopper between now and 2014, setting the stage for strong lodging industry performance
- National occupancy rate is forecast to be 62.1 percent by yearend 2013, greater than the long-term average of 61.9 percent, but still less than 63.1 percent pre-recession peak, This will allow pricing power by the lodging industry, further enhancing returns
- Average Daily Rates (ADR) are forecast to increase at 5.4 percent per year, compound annually, for the next four years.
- Luxury, up-scale and high-end chains and properties will see an occupancy rate more than 70 percent for the next four years
- PKF is forecasting unit-level net operating income growth rate of 10 percent compound annually for the next four years
To read the entire Meetings Focus summary click here.
Lodging and resorts are often held in real estate investment trusts (REITS), which have a distinct tax advantage in that the REIT must distribute at least 90 percent of the taxable income each year to shareholders. This results in a more favorable capital structure, minimizing taxes on profits. Stated simply, most of the gains are passed along to shareholders without being taxed at the business level.
That said, the National Association of Real Estate Investment Trusts provides price, dividend and returns series for numerous types of property and across equity, mortgage and hybrid investment.
The following graph depicts the NAREIT’s total return index (based on a 12-month moving average) for lodging and resorts. Note that total returns, while not at the unsustainable peak seen in 2007, are showing a very positive trajectory. Total returns include both the change in price of the equity and dividends.
Click here for monthly data series for various type of REITS. (We will be visiting these data-rich REIT series in future blogs).
The bottom line is that the lodging and resort industry is showing very positive performance with a great outlook. Coupled with an improving meetings sector, and minimal new product delivery in the next 24 months, the hospitality and resort sector should be a shining star among investors and owners.