Performance numbers presented by analysts at The Lodging Conference painted a pretty positive picture for the hotel industry, but an economist at the event predicted several economic challenges in 2019.
PHOENIX—It’s been another good growth year for hotel performance, and the future of hotels looks positive in 2019, but economic headwinds could dampen the positivity.
Data analysts on the “2019 by the numbers: Market analytics” session at the 2018 Lodging Conference said they were seeing slow, moderate growth.
Ali Hoyt, senior director of consulting and analytics at STR, parent company of Hotel News Now, said occupancy continues to grow and “overall rates (are still) at that average level of 2.6% for the eight months so far this year.”
Looking at quarterly results, Hoyt said revenue-per-available-room growth in 2018 has moderately accelerated compared to 2017.
“When you look at the growth in Q1 and Q2, 3.5%, 4%, you’ll see that accelerating over 2017 levels,” she said. “We’re still cautious about Q4 this year with the hurricane comps that we have to look at.”
Demand outpacing supply
The story of demand outpacing supply continues, which wasn’t expected to happen around this time in 2017, Hoyt said.
“We thought supply was going to be a lot faster than demand growth, but demand has been exceeding our expectations, and we’ve reflected that in our forecast for 2018,” she said.
Hoyt added that “supply in the cycle that has been very slow, moderate, deliberate growth has really helped fuel this expansion cycle.”
Hotel transaction volume saw a pretty significant decline at its peak in 2015, according to Adam Lair, managing director and senior partner at HVS, but “the transaction market has been pretty steady as she goes since 2015.”
In 2018, HVS is seeing that needle move a bit, Lair said.
“We have a 38% increase in overall volume, 14% increase in price per key … this includes the portfolio transactions that we’re seeing in the large-scale assets that are sold … but single-asset transactions are really not (up) significantly,” he said. “They’ve been pretty flat, $23 billion the last two years, which is indicative of what the overall market has done, and this year they are up 5%.”
Portfolio transactions have been strong, he said, going from $2 billion to $7 billion, which is a 215% increase. Lair added that there were four major portfolios that sold in the first half of the year that were sold for over $500 million, which include “the GIC Iconic U.S. hotels portfolio; Playa Hotels’ portfolio, Mass Mutual’ s U.S. (portfolio) and WoodSpring Suites.”
Things still look good for hotels, but Bernard Baumohl, chief economist for The Economic Outlook Group, said he sees economic headwinds ahead for the U.S.
“When you do take a look at some of the leading economic indicators … we do see some clouds converging over the course of the next two years, and that does suggest we’re going to have a material slowdown in economic activity beginning in the second half of 2019 and extending into 2020,” he said during the “Economic outlook” at the conference.
The economy is doing well now, and has benefitted from “a $1.5-trillion tax cut, substantial increase in government spending of both defense and non-defense spending, and all that fiscal stimulus has really supercharged this economy.”
Things look good now, but Baumohl said there are many factors, such as rising interest rates, the trade war between the U.S. and China and midterm elections, that could affect the economy.
“The expansion still has legs, but those legs are tiring,” he said.
U.S. consumers are spending now, but they are worried about inflation, he said.
“The idea now that interest rates and inflation are creeping higher, they’re becoming extremely sensitive to that, and that can affect consumer spending down the road,” Baumohl said.
He also pointed out that there are currently a lot of geopolitical risks.
“Whether it’s Brexit, whether it’s rising tensions in the Middle East or a possible crash in the South China Sea or the increasing adversarial relationship with Russia, clearly the geopolitical pot is now boiling; and that too will have an impact on consumer and business psychology in the coming months,” he said.