AUSTIN, Texas—Despite potential disruptors that seem to lurk around every corner, the worldwide hotel industry is enjoying an excellent run thanks to low supply growth and strong demand, according to three STR and STR Global executives speaking at last week’s International Society of Hospitality Consultants annual conference. (STR and STR Global are the parent and sister companies, respectively, of Hotel News Now.)
STR Chairman Randy Smith, STR president Amanda Hite and STR Global managing director Elizabeth Winkle—speaking on the same stage for the first time—said while there are pockets of concern in various locations, the overall health of the industry has never been better.
“It’s about as good as I’ve seen it in a long time,” Smith said. “I don’t see any problems on the horizon. Hands down the single best news in the industry today is we continue to have modest supply growth.”
While the trio shared a lot of information during the 75-minute session, following are key takeaways from the presentations:
1. Average daily rates on a rolling 12-month average through July rose 1.4% in Europe, while occupancy rose 2.3%.
2. On a 12-month moving average, hotel supply in Europe has grown 0.9%, while demand has increased 3.2%. “For both June and July, hotels across Europe sold over 100 million rooms,” Winkle said. “Demand has translated into occupancy growth, but we haven’t seen any (significant) rate growth.”
3. “The top five source markets for Europe are inter-European (Germany, United Kingdom, Russia, France and Netherlands), and you have economies still suffering,” Winkle said. “You don’t have the disposable income, then you don’t have the pricing power for hotels.” STR Global reports data for 1.1 million rooms in Europe.
4. Winkle said Germany—which has been the engine for European economic growth—is starting to show some slight signs of weakness.
5. Most of Europe hasn’t recovered to 2008 revenue-per-available-room levels (through July). Seven countries—Germany, United Kingdom, France, Turkey, Estonia, Hungary and Latvia—have higher RevPAR levels now than in 2008.
6. Portugal, Italy, Greece and Spain—countries that experienced steep declines and economic chaos during the global recession—are starting to show positive signs in the hotel industry. Winkle said that over the course of the last 12 months, those countries are seeing much greater demand than the rest of the eurozone (5.1% to 2.6%).
7. “It’s been an area interesting to see all the inflow of capital into London,” Winkle said, pointing to private capital from the United States and sovereign wealth funds from the Middle East as two of the primary sources.
8. London has seen a 2% year-to-July increase in supply and a 5.6% increase in revenue.
9. Winkle said the regional U.K. still hasn’t reached 2008 levels but is showing signs of recovery. Year-to-date group business in regions is up 20%, while transient business is up 8% during the same time period. “London is pricing (some group business) out the market,” Winkle said. “Group business is going into the regional U.K.” She cited cities such as Manchester and Glasgow as being prime beneficiaries of London’s rising rates and capitalizing on opportunities to host events such as this summer's Commonwealth Games.
10. What happens with the Scottish independence referendum being voted on Thursday could have a dramatic effect on hotels throughout the rest of the U.K., Winkle said. “The U.K. has had the strongest recovery in Europe; we’re starting to see some real growth,” Winkle said. “(Scottish secession) will erode all of that progress.”
11. During the 365 days ending 31 July 2014, greater London experienced 249 days with occupancy above 80%, 192 days above 85%, 100 days above 90% and 29 days above 95%. That means for more than 35% of that one-year time span, London hotels experienced occupancy of at least 90%.
12. The Middle East/Africa region is performing well. “Since the end of 2013 we’ve seen significant growth, particularly in South Africa,” Winkle said. “Dubai (United Arab Emirates) is performing very well.”
13. There are 68,000 rooms in Dubai, and the expectation is that number will double over the next six and a half years. “Dubai has done a very good job of continuing to reinvent itself,” Winkle said. “It is the Madonna of destinations.”
14. Northeast Asia, including China, has seen a 1.1% year-over-year drop in ADR, but RevPAR has increased 1.3%. “While demand is outpacing supply, the pricing power just isn’t there,” Winkle said. “The 72-hour visa China just implemented should help, particularly for corporate travelers.”
15. China had 58 million outbound travelers in 2013, with 81% of them traveling to other destinations in Asia. Hong Kong (30%) and Macau (15%) were the top destinations in Asia. Europe receives about 13% of visitors (France 3%, Germany 1.6%, U.K. 0.4%), while the U.S. welcomes about 3% of those travelers.
16. Latin America’s year-to-date ADR is up 19% (U.S. dollars), while RevPAR has increased 17.1%.
17. For the 12 months ending in July each of the major metrics tracked by STR showed growth in the U.S.: supply +0.8%; demand +3.4%; occupancy +2.6%; ADR +4%; RevPAR +6.7%; and room revenue +7.5%. “At this point RevPAR is a pretty good mix between occupancy and rate increases,” Smith said, adding that the ratio is about 50-50.
18. Through July, demand in the economy segment increased 4.3%. “The overall mood of people to travel has permeated through everybody at this point,” Smith said. “I didn’t see the economy (segment) increase coming.” Hite added that the improving overall economy has led more people without college degrees to travel, and that has had an impact on the economy segment.
19. There are a little more than 388,000 rooms in the STR’s under contract pipeline report—a 12.3% increase over a year ago. As for individual markets, Hite said New York City’s pipeline of 13,989 rooms represents nearly 12% of the market’s existing supply growth—by far the biggest percentage in the U.S.
20. Atlanta (+8%) has moved into the group of markets with the highest demand increases among the top 25 markets. Denver (+10.3%) and Nashville, Tennessee (+8.5%), lead the way. Atlanta and Denver (both at +8.2%) and Dallas (+6.1%) lead the top 25 markets in occupancy gains through July.
21. On the year-to-date ADR front, Nashville (+13.2%), San Francisco (+11.3%) and Denver (+8.1%) lead the top 25 markets, while Nashville (+19.1%), Denver (+16.9%) and San Francisco (+13.6%) are the leaders in the RevPAR department.
22. Holiday Inn Express is the brand with the biggest construction pipeline (26,072 rooms). Others in the top five: Hampton Inn & Suites (19,582), Residence Inn (17,018), Fairfield Inn & Suites (15,328) and Courtyard by Marriott (14,623).
23. “Over the years there’s been a close relationship between hotel demand and (gross domestic product), but over the last six months demand has taken off much faster than GDP,” Smith said. “When you really look at it, (gross private domestic investment) is the single best indicator of where demand is going.”
24. During the second quarter of 2014, GDPI increased 9%, while hotel demand increased 4.5%, Smith said.
25. One wild card is if the closures of several large casino hotels in Atlantic City, New Jersey, and Tunica, Mississippi, will have a net effect in the supply equation. “It has taken a whole lot of rooms out of the inventory,” Smith said. “That is going to act to suppress the supply growth rate, but the growth rate will still continue to increase. It will have a minor impact.”
26. STR’s U.S. forecast remains bullish. Highlights include RevPAR growth of 6.9% in 2014 and 5.2% in 2015, and ADR growth of 4.2% in 2014 and 4.4% in 2015. “You can’t argue with 4% rate growth, but we’re surprised it’s not better with the incredible demand growth in the industry over the last couple of years,” Hite said. Meanwhile, STR Global expects big things ahead for a number of markets, including: Milan, Athens, Rome and Hong Kong, among others.
View the global and U.S. overview presentations from the conference. (Free login/registration required.)