No matter what you may think of the current hospitality environment, the proof is overwhelming the hotel industry is on a major role. Last year we dubbed it the 'sweet spot' and there is no doubt that the lodging industry is in an exciting place of opportunity and crackling excitement.
It’s great to see many folks are feeling great about the state of the hotel industry and all indicators are that people will be profiting for several years to come. That is, if the industry stays disciplined and doesn’t over develop. Fortunately it seems as that won’t happen as banks are no longer lending willy nilly, which should help extend the up cycle for years to come.
The real good news is demand continues to outstrip supply by a good amount in most markets. And when combined with low new supply growth, it should help continue to propel the industry forward.
According to STR, room supply is about 1.8 billion room nights per year and the industry is selling about 1.1 billion of them. Average Daily Rate is continuing to reach new heights and RevPAR has seen 35 straight months of increases. STR sees this streak continuing for another 27 months, said Vail Brown, VP Global Business Development & Marketing, STR.
Eric Danziger CEO of Wyndham Hotel Group is bullish on the state of the industry going forward. “Things are going to be good for a while, I do not think we are at a peak. I don't know when the good times stop but in the meantime we are assuming things will be good for the foreseeable future.”
“The industry continues to be on a great platform for success. Demand is increasing, there’s good ADR pressure in a lot do markets and the Federal Reserve let us know they will continue at the same level which is a great platform for debt,” said Brian Quinn, EVP Development, Driftwood Hospitality Management.
Some are even predicting this may be the best time ever to be in the hotel business. Take that 2009!
“The industry is abuzz with opportunity. We are in a supreme super nova of opportunity,” said Bruce Ford, SVP Business Development with Lodging Econometrics, who said that transactions are steadily increasing. In fact, Lodging Econometrics reports that more hotels have already been sold through July 2013 than all of last year, and prices are continuing to trend upward.
And those transactions are happening at an ever increasing amount and are trading at values higher than the last peak before the Great Recession.
Steve Rushmore, Jr., HVS, President & CEO confirmed this notion and said hotel values have surpassed the 2006 peak. “We are expecting to see continued growth in value following double digit growth in the last several years and we will see it for a couple more,” said Rushmore, Jr.
HVS does expect a slowdown in 2016 but valuations should continue to climb nicely through then. He said the positive economic recovery will improve but interest rates will slowly rise while new supply will gradually increase with material impact occurring around 2016 or 2017
Douglas Kessler, President of Ashford Hospitality Trust, explained the reason why the transaction market is going to continue moving along nicely. “Deal making is at a healthy balance and prices are recovered to peak or near peak. It is a time when people are thinking about cashing out and redeploying capital and hopefully not over develop. It is a sellers-market and an opportunity for a great number of buyers to come into the hotel sector because the risk profile is,” Kessler said. “We are in the sweet spot of the cycle and there is a lot more room to roam in terms of buying and selling of hotels. More hotels will come to market as we get closer to peak.”
“We are seeing significantly more transactions than last year as a number of owners are looking to recycle capital or take chips off the table. There are some very good prices out there and I think the next year will be even better,” said Liam Brown President, U.S. and Canada, Select Service and Extended Stay Lodging & Owner & Franchise
Services with Marriott International.