New York - Hotel company
chief executives speaking here on Monday at New York University's International
Hospitality Investment Conference said they see little threat to the hotel
seller's market enduring for the foreseeable future, despite a particularly
gloomy economic prognosis shared by one prominent real estate mogul.
"We're in a very healthy part of the cycle," said
Hilton Worldwide president and CEO Christopher Nassetta. "We'd all like to
see demand growing even faster in the economy, if Washington would let loose a
little bit, but the reality is the economy is growing positively, demand as a
result is growing nicely and supply is rising but at the lowest levels we've
seen in decades."
Overall economic growth in the United States has been tepid,
and the slow recovery means the lodging industry cycle will experience a "much
longer recovery than we're used to," Nassetta said. Neither a demand
decline nor a rapid acceleration in new supply—which he said were the only two
things that would interrupt the lodging industry upswing—seem probably in the
near future.
Choice Hotels International president and CEO Stephen Joyce
said that although 2013 has been a "more fragile and less dependable"
year than 2012, it still will be a strong year overall for the industry.
"Summer is going to be strong, and we'll close with a
bang, and 2014 and 2015 should be great years," Joyce predicted. "We
should see a four- to five-year incredible run for the business, supported by a
huge influx of international travelers."
STR chairman and co-founder Randy Smith said data largely
backs up the CEOs' bullish predictions. For the past 10 years, the annual hotel
demand growth rate has been double the supply rate, and the U.S. hotel industry
in April hit an all-time monthly record of 92 million room nights sold. While
year-over-year demand comparisons likely will get softer in the coming months—and
one month in the near future might even have a year-over-year demand decline—it
"won't mean the party's over," Smith said.
Joyce said he also expects hoteliers will continue to spend
significant capital on renovations during the next several years.
Even so, two factors in particular are slowing hotel
industry growth, according to the chief executives: federal spending cutbacks
and sluggish group travel. On the former, none had much confidence that any
solutions would be reached soon. Nassetta said he expected little federal action
during the next few years on any of the travel industry's laundry list of
desires, with the possible exception of immigration reform.
"Unfortunately, we're going to get a whole lot of
nothing in the next few years, with all the IRS scandals and Benghazi," he
said. "The net result of that will not be bad for our business. It's a
less robust growth rate but nonetheless reasonably positive growth."
Meanwhile, on group business, there was "a good
recovery last year but [it] seems to be off to a slower start this year,"
said W. Edward Walter, president and CEO of Host Hotels & Resorts.
Nassetta said large group business particularly is lagging,
while small and medium-sized group activity is recovering more quickly. Overall,
group demand last year was about 15 percent to 17 percent off its prior peak
level, though transient demand has "more than compensated," he said.
Government cutbacks and less-than-robust group business are
related, Nassetta said. "When there's uncertainty, people tend to put
those kinds of decisions off. What was happening around sequestration, the debt
ceiling and et cetera ... we saw some base declines. Once we got past that, we
saw things pick up generally, and very recently, it's been moving in a very
nice direction."
Boston Properties chairman and CEO Mort Zuckerman, whose real
estate investment trust includes hotels in its portfolio, threw a bucket of
cold water on the proceedings. Though the slow economic recovery could prolong the
hotel industry cycle upswing, it's concerning that the rate of recovery is so
slow amid "the most stimulative fiscal and monetary policies by far that
we have ever experienced."
As a result, the overall economy—and, by extension, hotel
demand—is extremely vulnerable to any sort of shock, Zuckerman said.
"The difference today between an optimist and a
pessimist is that an optimist thinks this is the best of all possible worlds,
and the pessimist fears he may be right," he added. "When you think
about how little the economy is growing in terms of how much we've tried to
stimulate the economy, there's something going on that is very worrisome. We
need a recovery program to recover from the recovery."