Industry Shows Signs That Full Recovery Is In The Offing

Although not there yet, odds are a full recovery could be right around the corner.
This current hotel industry economic recovery reminds me of the famous children’s story of The Little Engine That Could, the classic tale of inspiration to children and adults, where the protagonist spends an awful lot of time working its way up a hill using the semi-positive affirmation “I think I can.” The little red engine, just like the hotel industry, maintained a positive attitude while making all the right moves in an attempt to reach its ultimate goal. The first two major hospitality conferences staged so far this year, Americas Lodging Investment Summit (ALIS) and the Hunter Hotel Investment Conference, have conveyed similar messages. Both illustrate that although there has been improvement our industry hasn’t quite bounced back yet.
At ALIS, Warren Jestin, senior vp/chief economist Scotiabank Group, reported that lagging unemployment continues to affect the health of the hospitality industry, as well as the U.S. economy as a whole. “Jobs are really the key to spending. Only one of every seven jobs has been regained since the recession began. There’s a lot of repair work to do, turning things around is going to take a long time. I think we’re definitely on the road to recovery, but we’re not back to where we were before.”
Jan Frietag of Smith Travel Research echoed Jestin’s sentiments, stressing that although occupancy and ADR have improved, they have both fallen so far since the recession began that it will be a slow climb back. “Occupancy is showing improvement, but it’s not where it should be and ADR is better, but not enough. The pipeline in North America has fallen drastically, while the pipeline in Europe and Asia Pacific is increasing,” he said.
Freitag also discussed lagging supply in the U.S. lodging segment and its impact. “We’re not seeing a lot of new supply. In 2010 more than one billion room nights were sold in North America, but ADR was still under $100 and occupancy was only around 60%. In 2011, the supply growth will be almost nonexistent but demand will be fairly healthy. I expect the same for 2012, which will hopefully lead to rate increasing.”
Hunter Conference panelists presented similar conservative sentiments with audiences. During the President’s Panel, Mitesh Shah, senior managing principal and CEO, Noble Investment Group, commented on some recent developments within hospitality with regards to Wall Street and potential investors. He felt that Summit Hotel Properties, Inc. and RLJ Development going public would bode well for this industry.
According to Jim Fitzgerald, managing director hotel investments, Principal Global Investors, during a session on hotel finance “on the debt side, we’re getting a lot more submissions.” Jim Merkel, president, RockBridge Capital, added that in general the “banking environment is getting healthier.”
During his keynote address Jim Abrahamson, president, The Americas, IHG. Abrahamson underscored some of the financial obstacles still facing the industry noting that there are some “500 hotels at IHG that are exposed to CMBS defaults.” He added big brand competitors have similar numbers. Abrahamson did see some reasons for optimism, however. “We do have some good signs that the financial markets and refinancing are coming back,” he said.
I am anxious to hear what the experts will have to say next month during the NYU International Hospitality Investment Conference. How much longer will we have to wait before the hotel industry is once again king of the hill?