Uncertainty remains a factor in an industry that continues to grow

The event, HX: The Hotel Experience, took place at the Jacob K. Javits Center in New York City. (“Will tomorrow be better than yesterday?” CBRE seems to think so, but hotel operators remain unsure.)

NEW YORK — “Will tomorrow be better than yesterday?” This omnipresent question is the crux of nearly every hospitality industry conference, particularly as the level of uncertainty within the industry remains high. This week's HX: The Hotel Experience show in New York City was no different, and Mark Woodworth, senior managing director and head of lodging research at CBRE Hotels, said the industry has much to look forward to—as long as regulators can keep pace with Airbnb.

After polling the audience to see how many people think the industry will be better off next year than it is today, Woodworth received predictably mixed results. He wasn’t surprised, seeing as much of the industry has been anticipating a sudden, precipitous fallout after recovering from the economic recession in 2008. However, he also said that the industry felt the same way in 2015—a year where operators recorded record-breaking occupancy worldwide. This record would again be smashed in 2016. Woodworth expects occupancy levels to remain flat this year, but nowhere near negative.

The struggle, he said, will be in increasing revenue per available room, which most likely will only be achievable through raising rates next year. This may result in an initial loss of rooms, but Woodworth said occupancy is so high at this time that hotel companies are almost giving rooms away.

“If my hotels are all full, who am I competing with?” Woodworth asked the crowd. “It would be myself. At this time, we as an industry have to push revenue through rate.”

One trend CBRE recorded is the growing swell of weekend travel. In 2000, weekday occupancy hung around 60.5 percent, dropping to 54.8 percent in 2010 before increasing to 62.3 percent in 2016. The change from 2000 to 2016 represented a positive yet modest 1.4-percent increase in occupancy during the week. However, weekend travel in 2000 came in at 68.3 percent, falling to 62.5 percent in 2010 and increasing to 71.3 percent by 2016. This represented a 1.8-percent increase in 2016 over 2000. What’s more, average daily rates have increased 2 percent in that same period for weekday travelers, versus a 2.6-percent increase for weekend bookings.

“The working-age population is increasing, more people are renting rooms and travel is growing dramatically the world over,” Woodworth said. “When you talk to people across the country, they feel the economy is only OK. However, travel is booming.”

Sharing Too Much

Woodworth also pointed to the success of Airbnb’s booking model, which has proven to be more effective than anyone expected. In 2016, Airbnb sold more rooms than all other years of its operations since 2009 — combined. 

Currently, the company is seeking out ways to expand into smaller markets, which is where much of its growth from last year can be sourced. This is taking place for a few different reasons, not the least of them the level of maturity found in primary markets as well as the increased regulations facing home-sharing operators. Airbnb is also making inroads into business travel, where it is finding more success than initially expected. This is partly because Airbnb hosts are able to remain in contact with travelers before they arrive, providing a level of service that wasn’t being acknowledged by the industry initially.

“Speaking personally, CBRE now endorses using Airbnb for business travel,” Woodworth said. “The businesses around Airbnb, such as Sonder, Pillow and TurnKey, are taking the uncertainty of using the service out of the equation.”

Fear of a Strong Dollar

One of the most significant concerns for hospitality companies today is the effect a strong dollar will have on inbound international travel. Basic economics teaches us that the stronger the dollar is, the harder it is to attract international travel, but markets that rely on such travel such as Miami, New York, Oahu and San Francisco continue to see a boost in traveler interest, with nearly 60 percent of Miami’s hotel occupancy attributed to international bookings.

Additionally, markets that have felt the strain of occupancy increases may be getting a break next year. Supply increased by 1.5 percent in 2016 and is expected t increase 1.9 percent by the end of the year, but that will be surpassed by an expected 2.6-percent increase in demand. Occupancy in 2016 came in at 65.4 percent, and this year it should increase slightly to 65.9 percent. However, a continued decline in RevPAR growth is expected if hotels don’t aggressively begin to push rates, with 2016 recording a 3.2-percent increase (down from 6.2 percent the year prior and 8.2 percent in 2018) while the end of 2016 will see hotels RevPAR come in at 2.9 percent.

“There is evidence that the supply pipeline is peaking, which is good news,” Woodworth said. “Additionally, hurricanes have affected industries such as lumber, making it harder to acquire materials to build. However, there remains a disconnect between our high occupancy levels and low ADR. There is not enough historic data for us to comment on it at this time, but we theorize it has something to do with the level of uncertainty in the industry today.”