Don’t believe the positive 2017 U.S. and global hotel forecasts you’ve been reading. Rather, be prepared, for the worst is yet to come.
As the weeks move on, occupancy continues to be negative as it has for most of the year. Recent numbers show a decline of 1.5%, and revenue per available room continues well below the levels projected by all the pundits at the Americas Lodging Investment Summit and the NYU International Hospitality Industry Investment Conference.
It is surely not the “Golden Age,” nor the sweet spot for hotels espoused by many. It is about time everyone admitted the reality that the hotel industry peaked in 2015. Although RevPAR is up a little, inflation for items not including energy and food is up 2.2%, so real RevPAR is barely up at all. Just as important, net revenue after online travel agency fees and other commissions is down to 82.8% from 83.2%.
It is reported that outside of New York and Houston, U.S. hotels are doing well, but we need to look at what that is compared to. Is it compared to the period from 2009 to 2012? On an inflation-adjusted basis compared to 2007 they are doing a little better, but values are declining now; so again, on an inflation-adjusted basis it is not clear values are higher than they were in 2007. Transaction volume has declined materially, and lenders and investors are far more cautious and dubious of the future for hotels.
Some who wish to make things sound better than they really are will cite unemployment numbers, jobs numbers and conclude that all is great. Here’s a reality check: While the headline numbers for unemployment sound good, the real unemployment number as used by economists is the U6 number, which is still above 9%. The participation rate is still near the 40-year low.
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