Hoteliers, Investors and Managers Remain Cautiously Optimistic on State of Hospitality Industry

Published: Jun 10, 2015
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The mood among the world's leading hoteliers, investors, and managers is cautiously optimistic; at least that was the prevailing opinion expressed at this year's NYU International Hospitality Investment Conference held recently in New York City.

Some observations we came away with from the conference: Industry leaders remain awash in increasing profit margins as the industry continues to demonstrate month after month of record performance. Even though investors we met with bragged about obtaining record EBITDA multiples of over 2x on hotel investments that were acquired between 2010 and 2012; there were also a remarkable number of sellers of assets. In fact, several speakers at the conference warned investors about not getting caught holding assets during this cycle when the music stops.

According to Smith Travel Research ("STR"), for the remainder of 2015, the U.S. hotel industry is predicted to report a 1.4% increase in occupancy to 65.3%, a 5.2% rise in average daily rate to US$120.93 and a 6.6% increase in revenue per available room ("RevPAR") to US$78.99. During that same period, demand growth (+2.6%) is expected to outweigh supply growth (+1.3%). When looking at the Top 25 Markets, 20 are expected to experience RevPAR increases of 5.0% or higher during 2015. Three of those markets are expected to see RevPAR growth in the range of 10 to 15%: Denver, Colorado; Phoenix, Arizona; and Tampa/St. Petersburg, Florida. For 2016, STR projects the U.S. hotel industry to post a 0.8% increase in occupancy to 65.8%, a 5% rise in ADR to US$126.94 and a 5.8% increase in RevPAR to US$83.56.

Key trends in the industry include an increase in group demand which bodes well for ancillary revenue generation; continued strength in the select service market; and growth in the importance of hotel revenue management efforts as hotel performance levels out. Real estate as an industry historically has been slow to adapt technology, yet a number of panels at the conference were dedicated to discussing technological advances in revenue management, customer service, and back-of-house initiatives. Trends in lending suggest that capital providers remain conservative with loan-to-value ratios averaging between 60 and 65% and construction financing continuing to be challenging to secure for secondary and tertiary market projects.

On the negative side were discussions surrounding the increase in supply in New York City, which industry leaders expect will stunt RevPAR growth over the next few years, and the impact of the rising U.S. dollar on global travel within the United States.

Overall, hotel veterans expect steady, stable growth in the foreseeable future barring any geopolitical disaster. As an industry, we continue to experience some of the best fundamentals we have ever seen, and we expect to see steady growth for hotels during the next two years.

Trends & Developments - June 2015