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Like a Rocket

The hotel industry is seeing peak rates, soaring demand and lots of other great stuff. Here’s the scoop.

Tuesday, June 04, 2013
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Unbridled euphoria is back and it’s looking like those good vibes will be around for quite some time to come. We haven’t seen glee like this since something like 2006, and unless something crazy and catastrophic happens like a direct meteor hit, the hospitality industry will be fueled by positively potent profits for the foreseeable future.

That sweet spot we have been talking and writing about is in full effect and with industry fundamentals in the best possible place the last vestiges of the previous downturn have been shed and all sectors are reaping rewards in a way that has the potential to make the last upcycle look pretty puny.

Here’s what we have been observing and experienced yesterday at the NYU Hospitality Industry Investment Conference. Operators in many markets are back to getting peak prices on rooms, developers are getting projects financed, dealmakers are seeing hotel valuations soar and demand for hotel rooms is outstripping supply by a considerable margin. Wow!

“This business will do well almost regardless of the economy. Supply and demand are at an exceptional point and we see either a positive scenario or a very positive scenario,” said Stephen Joyce, President & CEO of Choice Hotels International.

Joyce said 2012 was a ‘great year’ for Choice as revenue numbers climbed while development and financing finally bounced back to strong levels. He believes the summer travels season will be robust and the end of 2013 will also be as 2014 and 2015 he believes will be extremely strong as well. “We are in a strong operating environment and we in for four to five years of a good run,” Joyce said.

W Edward Walter, President & CEO of Host Hotels &Resorts sees the supply/demand as a driving factor of the recovery. “Because supply will be low and without a disruption that affects demand then I think we will have an extended cycle and most markets around us will benefit from that. Our markets [where we have hotels is] fairly healthy and we are seeing RevPAR growth everywhere,” said Walter.

Meanwhile Hilton Worldwide’s President & CEO Christopher Nassetta said his company is experiencing the same phenomenon globally. “This has been a real breakout year. We are in a very healthy part of the cycle. And Nasetta sees a burst of travel and tourism coming that will create global opportunity for decades to come.

“I think we are at the tip of the iceberg for an explosion for travel and tourism to last the rest of our lives and our children's lives. It’s the result of emerging markets like Southeast Asia and Latin America. As they grow and invest in infrastructure and lower cost airlines emerge these folks want what the rest of the western world wants; televisions, cars and to travel. There is a huge array of opportunity for our business in coming decade,” Nassetta said.

Demand is so strong domestically that every month seems to bring new records of rooms sold, which is helping certain markets return to peak pricing for their hotel rooms, said Randy Smith, Chairman & Founder of STR.

“Room demand has been on a tear since the end of the downturn. It is remarkable demand growth and it has been a couple of years since we began setting [rooms sold per month] records. We sold 92 million rooms this April,” said Smith.

That is helping hotels reach peak rates for rooms sold as an industry as a whole. As of April 2013 room rates had an average ADR of $107.79 which surpassed the last peak rate of $107.06 in January 2008. The big difference here is that rates are expected to continue climbing in top 25 markets and beyond. When broken down so far just seven markets have returned to peak pricing but others are expected to hit that mark at some point during the upcycle.
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