Hotel Data Conference focuses on industry direction amid uncertainty

NASHVILLE—"Are we standing on the brink of Armageddon?" It's not exactly the question you'd expect to be posed at a hospitality industry conference—Comic-Con, maybe. But there was Carter Wilson, who oversees the daily operations for the consulting and analytics division of STR, on stage, opening the Hotel Data Conference, here at the Omni Nashville, asking the audience just that.

Rhetorically, he followed: "After such great expansion, will we end via a fiery crash?" This being a data conference, Wilson may have acquired pre-conference data suggesting the audience were "Game of Thrones" fans, but short of that, his fire-and-brimstone references were there to make a point: With the hospitality industry's growth slowing, but barring a black-swan type event, where is the industry headed? Finished or fine?

One thing is for sure: "The hotel industry doesn’t do well with uncertainty," as Wilson correctly put it. "The fear of the unknown is what is freaking people out."

Which Way We Headed?

But is a freak-out substantiated? After all, the month of July had the highest demand on record and current RevPAR of $80 is also a high. "We are still breaking records," Wilson said, ticking off five things that make us happy:

  1. Still breaking records: 65.4-percent occupancy; $123 ADR; $80 RevPAR $80.
  2. Rate and RevPAR at all-time highs—even when adjusting for inflation.
  3. Real profits are close to peak.
  4. New supply isn’t devastating. There is more restrain in this expansion cycle. (The industry overbuilt from 1996-2000.)
  5. The economy isn't tanking.

Still, there is reason to be wary. When comparing, for example, ADR growth now to the 1990s, it's weak. Consider this: rate growth in 1996 was 7.3 percent compared to 2.8 percent in 2016.

Carter Wilson of STR helps open the Hotel Data Conference.

Wilson's 5 things that make him nervous list:

  1. Q2 earnings calls and July results. Guidance was lowered at many companies as many are adjusting RevPAR forecasts.
  2. Wall Street is moving on. Wall Street likes an industry in growth mode and the industry is at peak level.
  3. The election. It's never had a real market impact, but "we've never seen an election quite like this."
  4. Things we can't control: labor costs are growing faster than revenues at full-service hotels; Zika; cost of oil.
  5. We aren't growing rates like we used to.

Wilson's prediction: No fiery crash. Phew! "We have never had a sustained downturn in this industry unless in recession," Wilson said. "And no one is calling for a recession. It's not time to panic. Growth will slow, inevitably, but absence of a major event, no fiery crash."

Adam Sacks, founder and president of Tourism Economics, in accordance with Wilson, said he didn't see any signs of an imminent recession, during his presentation: "Economic Drivers of the U.S. Lodging Industry: Will the After-Party Survive? (Again, with the End Times theme.)

With the hotel industry dependent on consumer spend, particularly toward travel, are they splurging? Sacks said yes, alluding to the number 22 percent, as in household net wealth is up that much from the pre-recession rate. "Wage growth should also pick up because unemployment is at 4.9 percent," he further remarked. "That drives wage growth."

Further, "Consumers have been devoting an increasingly large share of disposable income to travel. Meanwhile, businesses have become more cost-conscious."

There's always a rub.

Here's What They Think

A forecasting panel consisting of Amanda Hite, president & CEO of STR; Mark Woodworth, sr. managing director and head of CBRE Hotels’ Americas research; and Steve Joyce, CEO of Choice Hotels International, looked at the future and tried to make some sense of it.

While Joyce was overtly optimistic (he's a brand guy; he has to be), Hite and Woodworth were more tempered.

"The deceleration of demand growth has happened quicker than expected," Hite said. "ADR growth is puzzling. It should be higher."

Added Woodworth, "Pricing power has not come back," he said, the impact of technology and supply given as possible reasons why.

Still, it's curious. Consider New York where July occupancy was 89.4 percent, but ADR declined 1.5 percent.

Forecast Panel (l-r): STR's Patrick Mayock; Choice Hotels' Steve Joyce; STR's Amanda Hite; CBRE's Mark Woodworth.

Joyce did fess up to some rate softening, but was adamant that this cycle is still not over. "We are still not at historical levels," he said. "In fact, this could be a fairly long cycle, primarily because bankers kept it that way. We have controlled supply growth. But we should be seeing rate hikes."

One of the overarching themes at the conference so far has been the extent and role banks play in the industry. Namely, it's their lending decisions that help control supply.

"U.S. supply has increased more slowly than in prior cycles, but the pace of construction could accelerate if past patterns repeat," Woodworth said. "We don’t think new supply will expand like it did in past cycles. There has been lender restraint."

Finally, the 2017 forecast:

Supply 2.0% 2.0% 1.9%
Demand 1.6% 1.8% 1.5%
Occupancy -0.3% -0.1% -0.4%
ADR 3.1% 4.1% 3.3%
RevPAR 2.8% 3.9% 2.9%