The good times continue to roll for the hotel industry

Since 2008, the hospitality industry has been waiting for its moment to shine again. In 2015, hotels saw their chance thanks to the improving economy, and knew the wait had paid off. If 2014 was a brisk jog, 2015 was a dead sprint toward high occupancy and record rates.

Hotel Management, in the past, has leaned on a song to sum up the industry's performance in summing up the year. For 2015, we point to the recently departed B.B. King and one of his favorite tunes to cover: "Let the Good Times Roll."

At the onset of 2015, industry analysts expected revenue per available room to be driven primarily by rates, but this has proven not to be the case. A report from PwC showed that occupancy is more important than ever for driving RevPAR, and demand for the end of the year is expected to reach levels that haven't been seen since 1981.

This surge can be attributed to consistently strong and growing levels of demand, topped off by a supply environment that is still under control. The good news is that demand is expected to continue to rise higher than previous peaks and break every previously held record. The bad news for rates is that the development environment has the potential to keep pace. 

The industry's desire to produce new product is shaping up to turn 2016 into a smorgasbord of development. Data from the U.S. Department of Commerce showed that the increase in room supply in the U.S. could reach 1.8 percent this year, the first time the industry has grown above 1 percent since 2009. Spending on nonresidential lodging construction in August grew 41 percent over the same period in 2014, the fourth consecutive month of lodging construction surpassing 39 percent.

Occupancy is expected to blow past any expectations we have now, but it will eventually stabilize. Despite this, the high and rising demand, alongside the industry's already rising rates, are expected to drive RevPAR to a 5.7-percent increase percent during 2016. 

THE BIG SHRINK
With great construction eventually comes great consolidation. While new developments continue to be added in areas in the U.S. that are badly in need of new supply, such as San Francisco, other areas of the country may start to feel over saturated. As this occurs, the industry is going to see more and more large portfolio buys, with no purchase more indicative of this than Marriott International's $12.2-billion acquisition of Starwood Hotels & Resorts, which was announced in November. 

One aspect of the Marriott-Starwood deal that stands out, and will be repeated over and over in 2016, is that Starwood was nearly acquired by foreign investors. 

In terms of foreign investment for the coming year, the good news is that international entities may have shed their tunnel vision on New York. While the market in the city has never been stronger, hotels such as the Mandarin Oriental in Boston are catching the attention of international money in ways only New York has done in the past.

Gateway cities and major urban hubs will continue to be the main sites for foreign investment. However, if the industry sustains its current low interest rates, it could divert the attention of foreign capital elsewhere as well. Hotel sales are on the rise in the U.S. across the board, with CBRE reporting an increase of 47 percent in hotel property sales during the second quarter of 2015 over the same period in 2014.

Consolidation isn't just hitting hotels, but OTAs as well. The merger between Expedia and Orbitz may mean one less company to deal with when writing contracts, but in the long run it also means a bigger OTA beast than ever before. 

Expedia is also now dabbling in the sharing economy with its $3.9-billion acquisition of Homeaway. While this feels like the rumblings of an ever-growing OTA juggernaut, the industry may finally have a chance at slowing the growth of disruptors such as Homeaway and Airbnb in the coming year.

SHIFTING SANDS
An interesting twist on guest activity also came to light in a new report from TravelClick, which showed that transient bookings are on the rise. Through October 2016, TravelClick forecasts transient bookings to rise 2.2 percent and ADR to increase 3.1 percent. The leisure segment is expected to get the biggest boost from this, with occupancy gains potentially up 4.9 percent, while transient business activity is expected take a hit down -1.3 percent. Groups, however, could see an occupancy increase of 3.2 percent.

John Hach, TravelClick’s senior industry analyst, said in the report that committed occupancy is flat year-over-year moving into 2016, meaning a greater dependency on rates early on to generate higher RevPAR. "However, TravelClick data indicates that occupancy growth will pick up later into 2016. With solid business intelligence and a marketing plan to support the valleys and peaks in demand, hotels should still be able to grow rates in the near-term."

The industry is looking at a year of more hotels, more occupancy and more investment from more avenues than ever before. This was a great year for hotels, and from the look of it, there is room for more.