Freitag’s 2017 forecast: Slower growth, more hurdles
Freitag’s 2017 forecast: Slower growth, more hurdles
16 DECEMBER 2016 8:35 AM

The hot-button topics for hoteliers going into the new year will remain the same, but plenty of change is in store. 

HENDERSONVILLE, Tennessee—Here is an assortment of predictions I have about 2017, representing things I expect more of and less of as the year progresses.

More RevPAR growth
STR, parent company of Hotel News Now, continues to forecast positive revenue per available growth in 2017 (currently +2.3%). If positive for the year, that would imply December 2017 will be the 94th month of prolonged RevPAR growth. It is, however, entirely possible that the shift of Easter from March to April will cause April RevPAR to decline. Still, as long as average daily rate growth continues to outpace occupancy declines, the industry will show growth.

Less demand growth
The U.S. hotel industry will continue to break demand records, and we will sell more rooms than ever in 2017. The same was true for 2016 and 2015 and in years prior, and each year the industry breaks demand records. But the rate of growth will slow, just as it has over the last few years. That is not good news for investors looking for growth industries, but it’s pretty good news for hoteliers everywhere.

More supply growth
Yes, the 183,000 rooms currently under construction will open eventually (well, most of them anyway). We expect that supply will grow around 2% in 2017, and the locations and markets for the new supply are well understood. This new supply will probably have a negative impact on some markets, notably in the larger Top 25 markets, where almost half of these rooms are being built.

More Trump hotel announcements overseas
Now that we all have Googled “emolument,” it will be interesting to see how President-elect Donald Trump extracts himself from his real estate holdings. No matter how he acts, I do not think it is a stretch to imagine foreign investors flocking to the brand that suddenly is connected to the most powerful man on Earth. I would not be surprised if high-net-worth individuals around the globe add the Trump brand to the short list of luxury brands they consider using for their hotel real estate.

Less construction lending
Seems to me that the bankers around today were very much around in 2009 and learned their lessons. Anecdotally, I hear that the lack of strong RevPAR growth in most markets makes lenders question aggressive underwriting by the developer. As those discussions unfold, the rooms in the under construction pipeline will likely peak in 2017 or 2018, and then slowly decrease as only the hotels with strong developers, with a strong brand, in desirable locations will make it through the funding rounds.

A little more conversation, a little more action
It may be science fiction today, but Expedia’s latest collaboration with Amazon’s Echo to allow for voice-activated travel search is a sign of the future. Both Expedia and Google are spending plenty of time and resources on NLP (Natural Language Processing) and eventually users will make simple travel arrangements, without human interactions, simply by talking into their device.

Airbnb is mainstream
If the current slew of lawsuits is any indicator, cities and Airbnb are arranging themselves in an uneasy truce. That bodes well for Airbnb and city tax collections but also for the local hotel operators as they can now compete with a known entity. As we said elsewhere, we think that the use of “Airbnb” as the one word answer to all that ails the hotel industry is shortsighted and too simplistic. Homesharing sites are a new breed of competitors that is being used by a large number of travelers, so the hotel industry needs to come to terms with its existence. Wishing it away does not make it so. And with its new “Trips” component, Airbnb only increases the height of the fence around its customer group. Hotel operators need to adapt to the customers’ wishes if they want to attract them.

New nationalism/tribalism vs. travel
I am not quite sure how to reconcile these two forces. On the one hand, the U.S. hotel industry has sold more rooms than ever and the OECD forecast for travel shows unhindered growth. On the other hand, the rise of the FN in France, AFD in Germany and FPOE in Austria, combined with the votes for Brexit and for Donald Trump, points to a world in which the electorate is turning inward and closing itself from “the other”—foreigners and immigrants. Policies that make borders harder to cross or re-establish borders that were long gone cannot be good for travel. 2017 will be the year this tension comes to the forefront. Hotel industry participants who rely on foreign tourists for part of their business need to be vocal to protect ease of travel and open borders. I hold with Mark Twain:

“Travel is fatal to prejudice, bigotry, and narrow-mindedness, and many of our people need it sorely on these accounts. Broad, wholesome, charitable views of men and things cannot be acquired by vegetating in one little corner of the earth all one's lifetime.” - Innocents Abroad

I wish you all a good start into a healthy, prosperous 2017. Looking forward to hearing your thoughts on what forces you think will shape the new year.

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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