Burba Hayes Hotel Trend Report

Hotel Trend Report

Mirroring the “Going Up” theme for the Americas Lodging Investment Summit (ALIS)  – the outlook for the US lodging industry is looking positive, according to Burba Hotel Network’s recently completed survey of hotel investors.

Will there be more or less hotel deal activity?

In the survey of ALIS delegates taken in September about the ‘deal activity’ expectations, almost two thirds (65%) expected that deal activity would increase by the opening of ALIS in January of 2014.  The same question in the previous two years resulted in a 54% and 38% positive response respectively – reflecting the steadily improving investment outlook.   In fact, only 3% expected things to be worse by January.

Is hotel development really coming back?

In following a normal post-recession path, a predictable survey finding was the belief that development activities were going to increase.  When asked about where they expect to see the largest growth in capital availability in the coming year 35% answered ‘development’ almost equaling the 40% who believed it would be for ‘acquisitions’.   Just two years ago, only 5% thought development would lead the way, with 83% believing acquisitions would lead the way. REITs and opportunity funds are expected to make up nearly two-thirds of the sources of capital next year according to the survey.

How much will new hotel development increase?

The vast majority of the respondents (91%) expect that the growth in money provided for construction will increase next year, with 62% expecting growth in excess of 5% (SLIDE 3).   The slide attached shows the relatively rapid increase in expectations from 2010, where only 26% expected growth in the coming year, to 91% today expecting growth in development capital for next year.   The survey expectations are following the same trajectory as forecast by Lodging Econometrics, which reported 346 new hotel openings in 2011and is forecasting 739 new hotel openings in 2015.

What sort of hotel development is financeable today?

The answer is more of the same!  As the development pipelines continue to grow the results remain nearly identical over the past six years.   Limited service is still the king of ‘finance-ability,’ with 42% of the respondents selecting this sector.   Upscale and mid-market followed in second and third place respectively, similar to the positions held in the previous six annual surveys.

What’s driving the growth in hotel investor optimism?

Other than some self inflicted wounds caused by the US Federal government (debt crisis and shutdown) there hasn’t been a serious economic shock for a while, thank goodness!   Investors and lenders in all real estate sectors remained cautious after the 2008 meltdown, but with improved hotel industry fundamentals, both are starting to get back into the hotel real estate game.   With the lack of new supply and the improvement in the economy the ‘hotel numbers’ continue to get better.

Results from a survey question posed about RevPAR growth expectations over the next twelve months show higher expectations from the already positive results from a year ago.   A robust 98% of the respondents expected RevPAR growth in the next twelve months.   This is evenly split between those who expect growth to be up to 5% and those who expect it to be between 5-10%.   This appears to be in sync with STR’s latest forecast of RevPAR growth of 6% for 2014.

How does the US compare to other large global markets?

For an international comparison, two other recent BHN surveys which focused on Asia and Europe show things going both ‘up’ and ‘down’.   In Europe, over 70% expected that RevPAR will grow over the next twelve months, a healthy increase from 54% positive score the year prior.   This parallels the answer to another question asked of our European colleagues, where 63% expected the economy to be tracking ‘upwards’ by January.    Europe seems to be shaking off the dust from the recent deep recession and things are looking up.   In China earlier this year, only 39% expected positive growth in RevPAR which compares to 64% the year before.   This is an interesting turn of events in China and Europe, and a clear indication that the US remains a poster child for optimism in 2014.

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