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BITAC - Hitting the Sweet Spot At BITAC Purchasing & Design West we proved the industry recovery is about to spill over into new construction. Here’s why we’re right. Tuesday, October 16, 2012 Glenn Haussman

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The hotel industry is moving into the sweet spot. So what if the global economy is depressing? Industry fundamentals and potential are lining up for what should be several banner years for the business as a whole and especially industry designers and suppliers.

Now is time to come to terms the recovery has been here for a while and if you’re not actively taking part in it, you are missing out on boundless opportunity.

Here at this week’s sold out BITAC Purchasing & Design West, buyers and suppliers are quickly learning that the rapid pace of industry renovations as well as the emergence of new hotel construction should keep people in profits for years to come.

BITAC is of course the industry’s preeminent idea exchange and at this sold out event attendees not only got a chance to network with top industry decision makers but also get the inside track on what is really happening in the hotel business.

Here is what is really happening.

“The hotel economy is in good shape since the recovery began in the middle of 2010. However there is still corporate constipation with people deciding not to decide. But if  you draw calendar on chart, lot of different things are going on” explained Bruce Ford, SVP of business development with Lodging Econometrics, which follows industry real estate transactions and the complete project pipeline from early planning through development.

Essentially the industry is smack in the middle of unprecedented renovations. It’s been feeding designers and suppliers for the last 18 months and Ford sees the next couple of years rife with renovations. So many, in fact, each year will be a record number of rooms experiencing renovations.

“We need to look at hospitality as happy and healthy and that we will be in an all-time renovation cycle for the next three years,” said Ford.

That’s a good thing for operators looking to increase pricing power and we all know a renovation help hoteliers push rates in the right direction. Demand for hotel rooms remains at an all-time high – that is NOT a typo – occupancy industry wide is relatively strong and if hoteliers weren’t so gun shy they’d get those rates up faster.

After that, expect new construction to kick in; slowly at first and quickly accelerating. Bankers are out there sniffing around again and are getting excited about being back in the hotel business. The good news about this specific cycle for operators is money will be doled out in a more rational manner rather than just to anyone with a plot of land and a (unrealistic?) dream.

While there are just 333 hotels in the domestic pipeline as of the moment, indications are it is about to start climbing. By year end Ford expects to see that pipeline grow by 10 percent. In 2013 he expects to see a 25 percent jump in the pipeline and then an explosion in 2014 which will double 2013 numbers.

Hence the sweet spot. With renovations continuing to rise and the construction pipeline picking up designers and suppliers should be in store for several years of robust opportunity. The industry as a whole will be chugging on all cylinders as demand keeps hotels full while developers will start to see cash come their way for new construction.

Those properties will take several years to get out of the ground and open to guests so during that time everyone’s a winner.

A couple of weeks back Steve Joyce, CEO of Choice Hotels said this about the current and future state of the hospitality business. “We are going to have a six to seven year run that is all positive regardless of what the economy does. Any help from the economy we’ll have a really good run.” construction return.

The transaction side of the business is the one area still lagging. But that’s OK too for the most part and in our editorial opinion it’s actually more evidence on overall hotel industry health.

Since owners are getting more confident daily they’re now thinking they could hold assets a little longer and get more for their investment by waiting just a little longer. It’s no longer a game of extend and pretend it’s a matter of don’t sell then do well. 

“We have had a good increase in hotels but right now it’s midscale and upscale hotels that are starting to break into marketplace. They do very well, are very profitable and continue to grow in industry at this time,” said Ford.