Ten-X Data: Hotel Demand Is Healthy, Will Continue

NATIONAL REPORT—A Ten-X Commercial report shows a record-breaking Q2 in the hospitality industry. The company’s quarterly Hotel Monitor report is an analysis of U.S. macroeconomic and hospitality fundamentals from the top 52 U.S. hospitality markets.

“The Hotel Monitor is something we do on an ongoing quarterly basis in order to keep Ten-X clients informed on the shifting fundamentals and pricing trends in the sector in order to provide them with ongoing intelligence as they approach their real estate portfolio decisions,” said Chris Muoio, senior quantitative strategist at Ten-X. “We try not to set out looking for one specific theme, but instead try to look at the data and then see what themes are emerging and relay those.”

More and more, people are traveling and staying in hotels due to the emergence of the experiential economy.

“One of the biggest themes this cycle is the ongoing consumer preference for experiences over tangible goods, resulting in larger spending growth in things such as hotels and motels and contributing to the headwinds being faced by the retail sector,” said Muoio. “As long as the labor market remains healthy, this undercurrent of growth will remain and drive growth in hotel demand.”

According to the data, hotel demand remains healthy; a strong labor market with rising wages will continue to drive growth in room demand, especially as consumers continue to show a preference for experiences.

Muoio points out that on the supply side, however, things are less bullish.  “Some markets continue to see significant development, which remains a headwind,” he said. “The one other thing we would point out is the plateau hotel valuations have hit. With rising interest rates and operating fundamentals growth cooler than earlier in the cycle, valuations have stalled out near their peak.”

A downturn is expected in 2019-2020, according to the findings in the report by Ten-X Commercial. How can hoteliers weather the storm?

“Well first, we caution that this is not a temporal recession prediction as of yet, but something we have integrated into our forecasts in response to client demand,” he said. “This economic cycle is one of the longest in modern U.S. history, and accordingly clients are beginning to worry about its eventual end. As a result, we have modeled into our forecasts what we believe the next recession will look like, and its effect on operating conditions and valuations so they can stress test their assets and portfolios, as hotel fundamentals react very quickly when economic cycles turn compared to other property segments.”

For hoteliers watching the ups and downs of the hospitality landscape, the Hotel Monitor offers a macro overview of both the operating and capital markets conditions in the sector, while also providing them with some key things to consider in the coming years.

“Currently, operating conditions remain healthy, but they are very levered to the continuation of the economic cycle, so looking for potential hiccups in the labor market is imperative,” he said. “It is also clear that despite the healthy demand backdrop, valuations are likely at or extremely near their peak for the cycle, as the rise in interest rates is becoming an increasingly dominant force in commercial real estate valuations.”