HDC: Analysts adjust forecasts, expect slowing growth
HDC: Analysts adjust forecasts, expect slowing growth
08 SEPTEMBER 2016 8:45 AM

STR and CBRE have lowered growth projections for the remainder of 2016 and expect similar trends to continue in 2017.

NASHVILLE, Tennessee—After a rougher-than-expected 2016, speakers at the 2016 Hotel Data Conference forecasted slower growth in 2017 compared to the recent boom years.

But officials with STR, Hotel News Now’s parent company, and CBRE Hotels both said that while things aren’t as great when compared to past years, they’re still good in the grand scheme.

Carter Wilson, VP of consulting and analytics for STR, told the crowd at the conference that there is currently no reason to expect the type of crash seen at the end of the last two cycles for the industry.

“I say it’s not the time to panic,” Wilson said. “I think it’s OK to accept that growth is going to slow. Growth is going to stall. But in the absence of some unforeseen major event, I don’t think we’re staring at the brink of a fiery crash.”

Updated projections
STR President and CEO Amanda Hite said the company has revised its 2016 full-year forecast to 3.2% growth in revenue per available room, down from 4.4%. STR also expects completely flat occupancy for the year with 3.2% average-daily-rate growth. Earlier in the year, the company had projected 0.4% occupancy growth with 4% ADR growth.

Hite said the relatively mild rate growth continues to confound.

“The deceleration of growth is not surprising, but it’s happening faster and earlier in the year than expected,” Hite said. “(The lack of rate growth) is always puzzling for us and has been for the past three years. The fundamentals say we should be able to achieve higher rate growth.”

CBRE Hotels is projecting 3.6% RevPAR growth, with 3.5% ADR growth and a 0.1% increase in occupancy for 2016.

In 2017, STR expects weaker, but still positive, RevPAR growth of 2.8%, with ADR up 3.1% and occupancy dropping 0.3%. CBRE Hotels is much more bullish on revenue and rate growth, with 3.9% RevPAR growth and 4.1% ADR growth, but similarly expects occupancy to fall, with a projection of a 0.1% drop.

Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research, said he expects this cycle to continue with solid growth for the foreseeable future, comparing it to the industry’s performance in the 1990s, as opposed to the quick and dramatic declines seen at the end of the previous two cycles.

“We have every expectation of a similar path to that seen in the 1990s,” he said. “Most economists we follow just say there’s nothing in the near to mid-term to threaten the ability to grow price going forward.”

Steve Joyce, president and CEO of Choice Hotels International, agreed that there is still some room to work in this cycle.

“You look around the country, and what people are doing is relatively disciplined,” he said. “At this point in the cycle, you typically see occupancy drops and big rate hikes.”

He said supply has largely been kept in check by disciplined lenders, which have kept inexperienced and overzealous developers from wreaking havoc.

But one of the biggest changes in the 2017 projections is supply is expected to outpace demand after years of favorable supply-demand dynamics. For 2017, both STR and CBRE Hotels are projecting 2% supply growth, with STR expecting 1.6% demand growth and CBRE forecasting 1.8% demand growth.

While that’s a factor in STR’s revenue projections, Woodworth said CBRE is still optimistic.

“In the absence of (a catastrophic event) we have every reason to comfortably believe we’ll continue to hover along at a nice level,” he said.

The economic forecast
Adam Sacks, president of Tourism Economics, likened the current point in the cycle to an after-party.

He said his company tracks a composite index of economic indicators to predict the future of the industry, and that index tells him there’s no reason to worry yet.

“Typically, the composite index has to get over at least 50, and in most cases over 70 or 80 (to indicate an impending recession),” Sacks said. “Now, we’re peaking at 30 and coming back down. We’re not seeing any of the signs we typically see of a recession.”

Sacks said there are two overarching trends affecting the hotel industry. The first is the growing priority of travel and tourism among the general public, coupled with increasing consumer confidence and disposable income, and the tightening of corporate spending that is reducing business travel. He said business travel will continue to lag for the near future until companies in general feel more confident.

“Capital investment is historically correlated with business travel,” Sacks said. “Companies view it as not a necessary expense but one that can be made for future returns.”

Sacks said inbound international travel has remained strong even in the face of a strong U.S. dollar, but he doesn’t expect that to remain the case.

“We see international travel actually headed toward no growth or even contraction as we head to the latter part of this year,” Sacks said.

Reasons for optimism, pessimism
Wilson said there are reasons to feel both optimistic and pessimistic in the current environment.

Reasons for optimism include record-high absolute values for key performance indicators—even when adjusted for inflation—strong profits, moderate supply growth and a relatively stable economy.

“Personal income and spending growth are healthy,” Wilson said. “And even the stock market is near its all-time high. … That doesn’t have direct influence on demand, but it impacts consumer confidence.”

On the negative side, Wilson warned of Wall Street’s continued pessimism about the hotel industry, along with lingering effects from the U.S. election season and concerns over things out of hoteliers’ control, such as Zika worries in Florida, increasing labor costs and the negative impact of persistently low oil prices on gas-driven markets.

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