The big news in 2017 was the stock market, consumer confidence and the economy in general. Tax reform, wage growth, reduced regulations and the strength of our nation could keep this robust economy going and dramatically enhance it. Supply growth has begun to moderate somewhat, in part due to high construction costs and also due to lender restraint.
Oil prices are back up, consumer confidence is solid, interest rates remain low albeit forecast to inch up and the U.S. and global economies seem stronger than last year. Gross domestic product may actually approach 3 percent in 2018, personal income growth is strong and low unemployment together with very strong corporate earnings indicates that both the leisure and corporate traveler have the means to travel and pay for a hotel
There will always be naysayers, so what caveats could stall the economy? We are not immune to any global crisis, politics and outside events. Notwithstanding the aforementioned, 2018 should be a very nice year in every area of hospitality.
U.S. Lodging Industry
U.S. hotel revenue per available room (RevPar) grew at more than a 2.6 percent clip in 2017. This is down from over 3 percent in 2016 but that was somewhat expected, especially considering political gridlock and the number of fires, hurricanes and active shooter events. Low gas prices fueled some growth in leisure travel. Occupancy levels are at a historic high and average daily rate (ADR) represents all of RevPAR growth. We see no reason that the economy cannot stay afloat and thrive in 2018 and keep ADR growth at a 3 percent level, albeit not enough to keep pace with the cost of labor.
New supply is not likely to stop the continuation of positive RevPAR growth for 2018. Banks will begin to put the brakes on lending in time to avoid approving deals that are just too late in the cycle for aggressive underwriting. That means those who are experienced, have solid equity, leading hotel brands or unique ideas, are in great markets and are considered trustworthy and strong borrowers will be able to develop. Increased developer cost of capital, new supply and Airbnb and others in the “sharing economy” are marginally reducing feasibility. Development economics in many markets will not support new construction.
While these factors might curb supply growth, the “sharing economy” is not going to have a material impact on demand in most markets and International travel is likely to come back as the strength of the dollar drops modestly. Ergo, it will be something else that stops this growth—a Black Swan event or a global meltdown are not likely to occur but could certainly stop this positive growth. Only time will tell but 2018 looks rock solid.
