Travel buyers hoping for relief from rising hotel rates
might have a long wait. Employment growth is sluggish, the U.S. federal
government is cutting back on spending and the eurozone remains in crisis, but
negative economic signs do not appear to be kryptonite for a strengthening
hotel industry.
Such prognostication has proven wrong before. "Great in
'08" and "fine through '09" were industry mottos just before the
economic freefall began in 2008. But now, hotel companies, at least those in
the United States, look stronger than they did even in those pre-recession
salad days.
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"I've never seen a five-year outlook that's as healthy
as what we're looking at right now," said PKF Hospitality Research
president Mark Woodworth at a recent conference hosted by The BTN Group. "The
fundamentals are incredibly strong. In lodging, supply growth through 2014 is
going to be below the historic average, and demand growth will be above average
through 2015."
During the second half of 2012, the U.S. hotel industry
achieved record occupancy, and during the first two months of this year, it
generated more room revenue than ever before, Woodworth said. At the same time,
a "meaningful number of rooms" will not open in the United States
until 2015 or 2016.
Among the hotel companies that provide performance metrics,
almost every brand raised rates moderately during 2012. That is continuing this
year. BCD Travel consultancy Advito's latest projections include a 5 percent to
6 percent year-over-year increase in the U.S. average daily rate paid in 2013
by corporate buyers.
Since the hotel industry rebound began, much of the increase
in rates has been occurring in the upscale, upper upscale and luxury tiers,
where occupancy is running about 70 percent, Woodworth said. Rate increases at
lower-tier properties also should begin to accelerate in the coming year, he
said.
"2014, from the seller's side, could be one of the best
years we've seen in a long time," Woodworth said. "To the degree that
[buyers] can lock in more favorable prices now, I'd be inclined to do it."
Global Outlook
Outside of the United States, the outlook for the hotel
industry is more mixed, although hotel stays in all regions this year are
projected to be more expensive for buyers than they were in 2012.
In Europe, Advito projected corporate travel rates will
increase between 2 percent and 4 percent versus 2012. Within Europe, the
largest increases were projected for France and Denmark (4 percent to 5
percent) and Germany (3 percent to 4 percent). In other countries, including
Finland, Italy, Norway, Portugal and Spain, rates will be about flat.
During the first quarter of 2013, net hotel reservations
through global distribution systems in Europe were down 0.6 percent year over
year, although they were up in every other region save South America, according
to Pegasus Solutions. Even so, Pegasus noted that Europe is a mature market
that "will typically maintain demand but not deliver year-over-year growth
margins as large as emerging economies like those of China and India."
In Asia, Advito predicted that ADRs for corporate travelers
will increase between 4 percent and 6 percent this year, and by 5 percent to 8
percent in the Southwest Pacific region. These include increases of 5 percent
to 8 percent in Australia, which continues to benefit from a mining boom, and 5
percent to 7 percent in South Korea, Japan and Singapore.
In China, Advito's most recent projections for corporate
travel call for an ADR increase between 2 percent and 5 percent, more modest
than forecasts issued in late 2012. Part of that stems from a glut of new hotel
openings in the country, though hoteliers also noted that business in China has
been affected both by a transition to a new government and by calls for
spending austerity.
"The continued austerity around government spending ...
has continued long enough after the announcement of the government transition,
that our expectation would be that it'll stick around for a while," said
Marriott International president and CEO Arne Sorenson during the company's
first-quarter earnings call.
Meanwhile, the largest regional corporate ADR increases
projected by Advito are for Latin America, up 8 percent to 12 percent compared
with 2012. Despite "Brazil's skyrocketing growth slowing a little,"
ADR there is expected to increase between 15 percent and 18 percent, and Advito
projected Argentina's ADR will increase between 12 percent and 13 percent.
Advito also forecast 2013 ADR in Africa will increase by 4
percent to 6 percent year over year, bolstered by a "surprisingly strong"
increase of 8 percent to 10 percent in South Africa. The firm's predicted ADR
increase in the Middle East is 2 percent to 4 percent, constrained by excess
supply.
Development
Although U.S. hotel supply growth during the next five years
will remain well below the long-term average, hotel development is not at a
standstill.
In fact, in terms of the number of hotels under development,
the United States has the largest active global pipeline, and in terms of rooms
in development, is behind only the Asia/Pacific region, according to STR
Global. The combined room pipeline of all regions other than the United States
and Asia/Pacific only is slightly larger than the U.S. pipeline.
New York, for example, is adding more than 10 percent in new
hotel capacity, making it an outlier among the major U.S. cities, Woodworth
said.
Overall, however, U.S. hotel development predominantly is
occurring among select-service brands (such as Hilton Garden Inn and Courtyard
By Marriott) and upper midprice brands (InterContinental Hotels Group's Holiday
Inn and Holiday Inn Express brands and Choice Hotels International's Comfort
Inn brand, for example). As of April, upper upscale and luxury rooms accounted
for only 8 percent of the U.S. active hotel pipeline and 16 percent of total
rooms under construction, according to STR.
Many entries in the select-service tier are relatively new
brands and hotel companies still are aiming to achieve critical mass. Choice,
for instance, is working to get its Cambria Suites brand into more urban
markets. Late last year it simultaneously broke ground on three Cambria
properties in the New York City area. Hyatt Hotels Corp.'s Hyatt Place and
Starwood Hotels and Resorts Worldwide's Aloft are other such brands that have
expanded their footprints in a relatively short period.
Hoteliers are increasing their investments in the United
States in other ways, too. Capital expenditures on improved amenities and
services for U.S. hotels in 2012 totaled about $5 billion, up 33 percent from
the previous year, according to New York University Tisch Center for
Hospitality dean Bjorn Hanson. Several brands are in varying stages of systemwide
upgrades, including Comfort Inn and Extended Stay America, while others are
embarking on design overhauls to keep their brands current and competitive,
including Hilton's Homewood Suites and Carlson Rezidor Hotel Group's Country
Inns & Suites.
While Asia/Pacific, particularly China, remains the
juggernaut for hotel development, many hoteliers also aggressively are
developing in South America, the Middle East and Africa. Starwood this year
temporarily moved its headquarters operations to Dubai, following its similar
temporary move to China in 2011.
"We have more hotels in Dubai than in any other city in
the world, outside of New York," Starwood president and CEO Frits van Paasschen
said on April 30 during the company's first-quarter earnings call. "The
region also is home to pools of capital that are looking to invest outside of
the Middle East."
Several large multibrand hotel companies increasingly are
looking to deploy their select-service and midscale brands in developing
markets. In some cases, they are building brands specific to markets. IHG, for
example, created the Hualuxe upscale brand specifically for Chinese travelers
and expects to open the first property by the beginning of next year. Marriott,
meanwhile, partnered with Ikea to develop Moxy, an economy hotel brand planned
for Europe.
"As we enter emerging markets, we typically establish a
beachhead with luxury and upper-upscale hotels," said Marriott's Sorenson.
"To achieve scale and long-term growth, we need a strong market presence
with a broad brand portfolio. We are introducing Fairfield in India and Brazil,
Courtyard in Mexico and China and Moxy in Europe to achieve that scale."
While many multibrand companies are bulking up their brand
roster—Marriott last year also completed its acquisition of conference hotel
brand Gaylord—a few are paring their lists. Extended Stay America, for example,
is moving away from the Extended Stay Deluxe and Homestead Studio Suites brands
in favor of a united Extended Stay America brand. Accor similarly moved its Etap
and All Seasons brands into the Ibis fold. Accor in 2012 also sold the Motel 6
brand to Blackstone for $1.9 billion, significantly cutting the overall number
of rooms in its system.
This report
originally appeared in the May 27, 2013, edition of Business Travel News.