Despite economic and political uncertainty in parts of the world, overall demand for travel and hospitality services continues to rise. Consumers are looking for unique experiences at all price points and hoteliers believe that their diverse portfolio of travel offerings can continue to deliver on that growing demand. The improving outlook for the U.S. and global economies is helping push the business travel segment as well.
Confident consumers bode well for hotels despite the surge of new inventory in the marketplace. Thus, we see no reason why the U.S. hotel industry should not continue to enjoy gains on both the top and the bottom lines, in the near term, albeit at a more modest pace compared with the past two or three years.
As such, we see plenty of reasons to be optimistic about the broader hotel industry over both the short and the long terms. Below, we discuss what investors can look forward to:
Demand-Supply Gap Favorable : Improving economic indicators is a boon for the hotel industry as it has perked up leisure and business travel demand. The supply-demand environment in the U.S. has been favorable since 2010, with growth in demand outpacing supply growth. Though, of late, the gap between demand growth and supply growth has narrowed considerably and occupancy growth has slowed, higher average daily rates (ADRs) are expected to keep driving revenue per available room (RevPAR).
We realize that favorable prior-year comparisons contributed to strong demand growth in first-quarter 2017, and that pace cannot be sustained through the rest of 2017, with demand expected to moderate. Nevertheless, in spite of the large pipeline of hotels, both CBRE Hotels’ Americas Research and PricewaterhouseCoopers (PwC) are projecting demand (2.1% rise) to outpace supply (increase of 2%) once again in 2017, given the positive economic outlook for the remainder of the year, thereby resulting in the eighth successive year of occupancy growth for the U.S. lodging industry.
International Expansion : Major hoteliers are exploring growth opportunities abroad, especially in the emerging markets and the outlying areas surrounding major cities. Hoteliers are forging ahead with expansion plans in emerging markets with great long-term potential despite looming macroeconomic concerns.
A number of U.S.-based hoteliers are targeting the unsaturated markets in Asia-Pacific, the Middle East, Brazil, Russia and Africa. Within Asia, China promises significant growth, despite an economic slowdown, with visits expected to increase substantially ahead. In fact, China is the fastest growing lodging market in the world. Interestingly, the country is a major revenue contributor for Marriott International, Inc.
