The end of the year — and what a year this one has been — is often a time for reflection, as well as one for forecasting what next year will bring.
In 2016, the global hotel industry contended with plenty of changes: Consolidations continued. Disruptors got more disruptive. Throughout it all, one perennial question from everyone in the hotel industry, it seemed, was: “Where are we in the cycle?”
Here’s our prediction: We’re still going to be asking that well into 2017, too. Regardless of exactly where we are in that cycle, it’s safe to say that next year will continue to be a year of changes, big and small, for the hotel industry.
Just how much change we’ll see next year has yet to be determined, but here’s a look at what industry analysts are predicting for the U.S. lodging business.
PRICEWATERHOUSECOOPERS: GIRD YOURSELF
PricewaterhouseCoopers (PwC) thinks 2017 will be the year when the cycle begins to turn downward. In its November 2016 Hospitality Directions U.S. report, their analysts predict that in 2017, supply growth will accelerate at a long-term average of 1.9 percent but waning demand growth will lead to the first occupancy decline that the U.S. lodging industry has seen in eight years. They also predict a slower average daily rate growth and a revenue per available room (RevPAR) increase of only 1.7 percent.
They write: “Uncertainty, both international and domestic, continues to weigh on U.S. lodging industry performance. Economists have voiced concern that the President-elect’s as-yet-undefined, long-term stance on key economic policies, including international trade agreements, infrastructure spending, and monetary policy, may cause a drag on business investment. This uncertainty, combined with plateauing growth in corporate profits, is expected to continue to weigh on corporate transient demand. Additional demand-side concerns, including the strong U.S. dollar, Brexit, and economic weakness in the Eurozone, Zika, and depressed energy sector activity, are all expected to contribute to the continued weakness in lodging sector demand growth.”
CBRE: IT’S A MIXED BAG
CBRE Hotels’ Americas Research, part of the commercial real estate services and investment firm, views 2017 as a bit of a mixed bag: not entirely bad but not entirely great, either.
Although the 2017 occupancy rate will be just 0.1 percent off the all-time record occupancy high the industry saw in 2016 (65.4 percent), CBRE says the average daily rate hotels can charge will only go up abut 3.3 percent next year, and the growth rate for average daily rate has been falling since 2014.
“Conventional wisdom says that at such high occupancy levels, hoteliers should have the leverage to implement strong price increases. However, like for much of 2016, you need to throw conventional wisdom out the window,” said R. Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research. “Of course, movements in ADR do vary by location and chain-scale. The northern California markets of Sacramento and Oakland, along with Washington, D.C. and Tampa, are projected to lead the nation and enjoy ADR gains in excess of six percent during 2017. Further, lower-priced independent properties, which have lagged in their recovery, are starting to see some meaningful increases in room rate.”
Why is this the case? While there are a number of mitigating factors, CBRE pointed to the preponderance of discounted member rates, the sharing economy, and increasing numbers of more price-sensitive weekend leisure travelers.
Woodworth also said that, because this was an election year and it was hard for the market to know what the Fed would do regarding interest rates and the rising dollar, he believes both companies and individuals “held back on their commitments to spend more on meetings and travel.”
Will people still be traveling in 2017? John B. (Jack) Corgel, a professor of real estate at the Cornell University School of Hotel Administration and senior advisor to CBRE Hotels’ Americas Research, said, yes: “In short, people are spending on themselves, and that bodes well for travel.”
Corgel, however, said that labor costs will continue to be a major concern for hoteliers, and because hoteliers won’t be able to raise average daily rates as much as they would like, they will likely feel a bit of a pinch when it comes to balancing their accounts and attempting to turn up profits.
So how would CBRE summarize next year for the hotel industry? In a word? Flat.
“Lodging is a cyclical business, and we continue to see U.S. hotels sit on top of the peak of the cycle after recovering from the Great Recession,” Woodworth said. “We are encouraged by the positive outlook for lodging demand and resulting high levels of occupancy. While flat performance sounds disappointing, the strong underpinnings supporting continued growth in travel will prevent an outright fall from the peak.”
FITCH RATINGS: MORE OF THE SAME
In its 2017 Outlook: U.S. Lodging & Leisure, Fitch Ratings said next year will be a “stable” one for the lodging industry in the U.S. with expected revenue per available room (RevPAR) to go up by 1 to 2 percent in 2017. The firm also thinks leisure and group business will continue to offset weaker corporate travel business, and that merger and acquisition activity will continue among “smaller participants” who want scale.
Despite the much-touted “direct booking wars” of 2016, Fitch Ratings analysts believe “OTAs