It’s officially a new year and despite there being nearly a decade of positive industry metrics and growth, there are still those wondering—as they have for the past nine years—if a downturn is on the horizon in the coming months.
For the most part, industry analysts have released 2019 forecasts that look promising. CBRE anticipates the United States hotel industry will, indeed, see its 10th consecutive year of growth this year. Occupancy is expected to meet a record level for the fifth straight time, rising to 66.2 percent. The growth is mainly the result of a 2.1-percent gain in demand, which will trend above the projected net increase in supply of 1.9 percent in 2019, according to CBRE.
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So, can the industry expect a downturn this year?
“No, because the most worrisome borrowers are a very small percentage, and those are the people that just can’t make payments on...principal [or] interest,” said Jack Corgel, senior advisor of CBRE Hotels’ Americas Research, in the firm’s “Lodging Insights: 2018 Final Edition.”
He said unless something more concerning happens, there’s no reason to worry. Looking at past recessions, Corgel cited the 1990s’ 15-year depreciation generosity toward investors and the dot-com companies with no revenues but large multiples. Then, the Great Recession era was filled with home-loan borrowers who were not required to make payments for long periods of time.
“Right now, I just don’t see anything stupid going on,” Corgel said.
R. Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research, agreed.
“My approach is to look at some of the more simple, basic things. As we look at the period-to-period change in demand, it continues to be very healthy,” he said. “There is caution, but I wouldn’t say [there's] a high level of concern that I’m sensing because people continue to travel.”
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Corgel cautioned, however, that the industry needs to keep its eye on the “quiet bubbles."
“There are many other takes on this whole recession idea and some of them get to the fact that the last recession had a very strong credit flavor to it,” he said. “There are academic papers out there talking about 'quiet bubbles.' The prices you can see for hotel assets and other things are quite obvious, but the credit bubbles are a little more quiet. We need to watch out for those.”
Even so, Woodworth said the U.S. economy should hold up at a steady pace for at least another year to 18 months.
“That’s a good solid year more than what we were thinking two years ago, so getting well into 2021,” he said. “But again, I still don’t contemplate any kind of a downturn. A slowdown—I think there’s a lot of consensus that [that] reasonably can be expected to happen over the next couple years, the back end of that. But in terms of a downturn, certainly nothing in terms of close to the last couple that we’ve seen.”