5 ALIS takeaways show hotel industry’s shifting course
 
5 ALIS takeaways show hotel industry’s shifting course
31 JANUARY 2017 8:40 AM

The changing political environment gives ALIS attendees a different outlook as key issues move to the forefront.

Like the rest of the world, the hotel industry is in a state of transitions. Five transitional trends reoccurred from the record crowd of more than 3,000 who converged in downtown Los Angeles last week for the annual Americas Lodging investment Summit. By no means were these the only topics discussed, but they did come up often as attendees admitted there is plenty of uncertainty surrounding the U.S. hotel industry.

1. Transactions market gets a kick
The general consensus is that there will be more hotel transactions in 2017, but there will be fewer megadeals such as Marriott International’s acquisition of Starwood Hotels & Resorts Worldwide. A repeated concern among attendees was that the pickings are slim in terms of the inventory of available hotels for sale. This was mainly attributed to a number of sellers pulling assets off the market because they believe buyers are looking for steep discounts and aren’t willing to pay realistic prices.

One thing that could turn that around in a hurry is if the publicly traded REITs jump back into the game. They largely have been on the sidelines since mid-2015 because of depressed stock prices, but the so-called “Trump Jump” of the stock market might have them rethinking their strategy. The R.W. Baird/STR Hotel Stock Index jumped more than 19% in 2016 after a sluggish first nine months. January is just as strong as it gained more than 900 points (19.6%) through last Friday. Overall, the Index increased 30.6% between the election and 27 January.

When they’re active players, REIT executives have never been shy about stepping up to the plate and paying top dollar for assets. That could be the biggest wild card for 2017—how aggressive do they become if stock prices keep rising?

The other major influence on transactions could be foreign capital, particularly money from China. Many ALIS attendees believe there will be one final massive wave of Chinese capital finding its way into the U.S. hotel market before the country’s clampdown on currency is fully implemented. If that happens, it would fuel an increase in the number of deals and the sales prices.

2. RevPAR will stay positive for now
With the U.S. hotel industry experiencing 82 consecutive months of growth (through January), it seems hotel executives have come to the conclusion that marginal revenue-per-available-room growth will be the rule of the day for the foreseeable future—but it beats going negative.

Executives I spoke with have RevPAR expectations ranging from flat to “up 5% or 6%.” The most optimistic ones seem to be hoteliers with portfolios west of the Rocky Mountains. The Pacific Coast appears to still have some room for growth. The U.S. RevPAR forecast from STR, the parent company of Hotel News Now, comes in at 2.5% in 2017 and 2.6% in 2018.

3. More supply on the way
The wave of hotel construction that emerged during the past 24 months could be on a prolonged trajectory. Many hotel executives believe President Donald Trump will ease regulatory constraints placed on lenders, which means lenders could release more money in the market. “Turn on the spigot” was the most popular refrain from ALIS attendees, and they said construction loans would be a significant portion of that pool.

STR projects 2% supply growth in 2017 (2.2% in 2018), and that it will outpace demand growth for the first time in several years. That alone calls for hoisting a red flag as historically that equation often spelled tough times ahead. But for now, expect more street corners to have new hotels. For that matter, expect new street corners to be built, which will have a tremendous effect on hotels in existing submarkets.

4. Politics takes center stage
Like him or not, Trump is having a global impact in all aspects. The biggest takeaway from ALIS is that the majority of attendees aren’t personally thrilled with Trump being president; however, they think he will be good for the business environment.

During the Lodging Industry Investment Council meeting held in conjunction with ALIS, nearly 70% of attendees said they think Trump’s presidency will be a good think overall for the hotel industry—but many of the them prefaced their vote by saying they had some concerns about Trump overall. Key topics expected to have significant course changes include union activity, wage increases and regulatory issues.

5. Still not a big threat
Sharing-economy accommodations such as Airbnb still presents worries, but hoteliers are taking it in stride. The hotel industry had more demand than ever and sold more room nights than ever in 2016, which reduces the perception of threat from outside sources.

Yet, there still isn’t what anyone would call phenomenal ADR growth—which points to some timidness on the revenue-management side of the business. It will be interesting to see what approach RMs take as the economic and political environments regularly shift throughout 2017. Much of the business on the books was reserved when there was more pessimism about the economy. The approach will be influenced by the continued emergence of sharing-economy platforms such as Airbnb, but overall, it appears that most hoteliers in the trenches continue to watch that sector with a wary eye but don’t see it as an overwhelming threat.

Overall, the mood at ALIS wasn’t as downcast as it had been at conferences held during the second half of 2016. No one was outright giddy about the industry’s prospects for 2017, but there weren’t many seriously negative Nellies, either. Simply put, there was an air of optimistic uncertainty.

Care to share your thoughts? Comment below, email me at jhigley@hotelnewsnow.com or find me on Twitter @jeffhigley1.

The opinions expressed in this blog do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

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