Is Hotel Industry Finally Poised For A ‘Hot’ Summer?

One of the often-heard criticisms of the lodging industry is the fact that as soon as we start heading in the right direction in terms of demand, we start building hotels again and adding supply into the equation. But this current cycle is not like past ones in that it seems to be more protracted and the unprecedented dearth of lending has brought new builds to a virtual halt in the U.S.
Many have suggested these factors could play right into the industry’s collective hands and that we’ve effectively been “saved from ourselves.” Earlier this month Lodging Econometrics released a report noting that hotel projects continue to decline for the upcoming quarter and only 72 hotels came online in the first quarter of 2011, marking the first time in the current cycle that quarterly openings fell below 100. Furthermore, there are just some 426 projects presently in the construction phase, according to Lodging Econometrics, which noted that the aforementioned data represents an ideal scenario for operators once demand picks up.
While I am inclined to agree, if you ask me the summer season is going to go a long way in letting us know where we are as an industry. All evidence indicates that we are poised for some good times ahead but just how widespread the recovery will be is where the rubber meets the road.
The recovery has been well documented in some of the top markets like New York City and Washington, DC, but what about some of the secondary and tertiary markets? When those markets start seeing traction, not just with occupancy but with rates, then we will know we are truly on our way to better times.
Of course there are always potential obstacles. Last summer, for example, those properties along the coast of the Gulf of Mexico saw summer bookings plummet as word spread of oil showing up on the beaches. This summer we are faced with the specter of astronomically rising fuel prices, which threaten to impact travel to both drive-to and fly-to destinations as airline rates spike as well.
But if people have the desire and means to travel—and it seems that at least most of them do again—the aforementioned costs should not deter them in a big way. Consumer confidence seems to be rising, albeit slowly, and you can’t underestimate the importance of that. Estimates had some 31.1 million Americans traveling on Memorial Day weekend last year and that number is expected to grow this year.
But the rebound for the industry needs to be about more than performance at the property level. All the money that’s been sitting on the sidelines waiting for the right time to come into the market needs to be invested. Only then we will see asset values really starting to increase in a major way. Again, not just in the top 25 MSA’s but in the tertiary locations as well.
The current supply and demand ratio may be the impetus for all of these things to occur. There’s a saying we’ve all heard that the industry isn’t overbuilt it’s under-demolished. While one could certainly make that argument driving through “Anytown USA” in the last couple of years, the last thing anyone wants to see is hotels being demolished and a robust summer can go a long way toward making sure that doesn’t happen.