Hoteliers are still benefiting from a positive industry performance at the start of 2017, but after an up-and-down 2016, the horizon has never been cloudier.
Now that I have returned from my annual pilgrimage to the Americas Lodging Investment Summit in very rainy Los Angeles, it seems that the mood in the real estate and finance sector of the hotel industry has shifted.
Whereas last year the uncertainty of the U.S. election caused anxiety amongst the attendees, the mood this year seemed somewhat better. That said, worry of the unknown political outcome last year seems to have been substituted for further nervousness since now industry participants have to decide how and if outbursts of 140 characters align with existing or present new policy.
The consensus about the impact of the new administration seems to be that tax relief and easing of regulations are net positives. Both should spur GDP growth and hence room demand.
On the other hand, global political uncertainty will strengthen the U.S. dollar, making inbound tourism more expensive, something that will be felt especially on the coastal markets. In addition, a wall or fence, however long, could send a strong signal to tourists that the U.S. might not be “open for business” with negative implications. Stricter immigration regulations or even deportation will be a drain on the labor pool, and since the hotel industry will need to compete for fewer available workers, wages will likely increase (not to mention the increase in costs of foods from the farms across the U.S. which also rely on immigrant labor).
The great uncertainly of 2016 has given way to the great uncertainty of 2017.
So, what do we know for sure? Despite repeated calls to make revenue per available room great again in 2017, there seems to be consensus for a slowdown in RevPAR growth this year.
Our friends from CBRE are slightly more optimistic, our friends from PWC slightly less, but overall we prognosticators suggest RevPAR growth of sub-3%. We expect that supply growth will outpace demand growth—as it has done in some markets already—and occupancy to decline on a national level.
Average daily rate should continue to increase, but since we at STR have continually overestimated pricing power in the upmarket, we are now finally suggesting ADR growth of less than 3%. I hope to be surprised on the upside here, and indeed, if inflation does increase in the near future it could bode well for more robust ADR growth since the hotel industry traditionally outperforms the inflation rate. (STR is the parent company of Hotel News Now.)
Where does that leave operators and real estate investors? I talked to a market participant who defined his strategy as “opportunistic, but from a defensive posture.” In other words, yes, there are deals to be had but investors should be careful to protect themselves from downside risk, given the level of uncertainty.
From an operator perspective, it seems that the technological advancements described by the Microsoft Evangelist James Whittaker from the main stage are an opportunity that the hotel industry and other industries are just starting to exploit. I found his argument of the constant data generation all around us very compelling; the question is just how you tap into the stream of data to enhance guest services. He mentioned Airbnb as a pioneer in this field and I am sure most major brands are knee-deep in explorations of the topic.
Another telling insight about technology was that of the four CEOs on the panel moderated by Deloitte’s Adam Weissenberg, none said they use social media for business, including Eric Danziger, CEO of Trump Hotels.
That is sad. If we as an industry try to communicate with our ever-changing guests, isn’t the first step to use the right communication channel? (Speaking of this, feel free to follow me @jan_freitag.) And I think those communication choices need to start at the top.
On the same panel, Danziger paraphrased a great quote about how a lot of industry participants, including myself, look at 2017 and beyond: “It’s good, until it’s not good anymore,” which seems in equal measures optimistic and cautious. It also seems to be the right attitude for this time in the cycle.
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