When forecasting what will occur in a given year, I often quote lots of others, which reduces the risk I am taking as a sole prognosticator. Yet having now been around the industry exactly 45 years, I am going to create some predictions of my own.
The Boston and Cambridge lodging market accommodated approximately 7.5 million roomnights in 2018, growth in demand of 3.4% from the prior year. The market's supply increased 2.8% with the opening of four new hotels and a guestroom expansion which combined for approximately 760 new rooms available nightly. As a result of these dynamics, the market's occupancy increased 0.3% to 82.7%, its highest point in history.
Since the debt crisis hit the market Canadian lodging in 2009, causing a 12.3% contraction in RevPAR, the industry has been on an upward trajectory. In fact, RevPAR growth has been registered for 106 consecutive months—the longest period of sustained growth on record. In 2017, the RevPAR increased by 7.7%, fuelled by a 5.2% increase in ADR and a 3.2% gain in demand, supported by limited supply growth of just 0.8%.
Reading forecast content from the plethora of prognosticators out there can drive one into craziness. Clearly, the current economy has strengths like consumer confidence, employment levels, low oil/gas prices, and purchasing managers sentiments as expressed by the Institute of Supply Management (ISM). Gross Domestic Product (GDP) has been growing at a strong 3 percent +/- rate and most pundits expect a 2-3 percent increase in revenue per available room (RevPAR), largely attributed to average daily rates (ADR).
The present hotel cycle is defying conventional expectations of late-cycle Revenue Per Available Room (RevPAR) behavior. Over the previous two cycles, recovery began primarily with occupancy. As the cycles continued, average daily rate (ADR) began to rise. Eventually, the increases to ADR were the dominant contributor to RevPAR growth, and occupancy leveled off or even slightly declined.
In this seventh annual Lodging Tax Study, HVS Convention, Sports, and Entertainment Consulting surveys lodging tax rates and revenues across the United States. Our study includes a broad range of cities and tracks policy trends in lodging tax impositions. This research identifies the lodging tax rates levied at the state, county, city, and special district levels. We provide data on the collection and distribution of revenue from lodging taxes levied in all 50 States and the 150 largest cities in the United States.
Like most every other role at a hotel, being an owner or investor has never been easy. This is perhaps nowhere more evident than in New York City where exorbitant construction costs mixed with steadily increasing wage rates, maintenance and depreciation can make the break-even point higher than practically any other locale on the continent. Thank goodness this is reflected in the average daily rates.
Longtime hotel industry rival, Airbnb, continues to make headlines with its latest offering. In an effort to own more vacation accommodation bookings, the company, which built its business on being the anti-hotel alternative, now offers more boutique hotel listings than ever before. But, even as Airbnb adds more hotels into the mix, hotel brands are not featured. Despite this, there is a lot that hotel brands can do to stay competitive in the sharing economy.
We have officially been transformed into the John Naisbitt coined "hi tech, hi touch" world, 33 years after the release of his book. Led by revenue management but now including distribution, channel management, social media marketing, Web 2.0 and more. The industry has been permanently changed.
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.
In lodging industry parlance, other operated departments are frequently referred to as minor operated departments. Based on recent trends in other operated department revenues and profits, these sources of income have become less consequential to both the top and bottom lines of U.S. hotels.
With the start of the new year, many of us take stock of where we are and what 2018 holds in store. The status of the U.S. hotel industry partly depends on the lens you're looking through—whether you're a franchise company, developer, owner, operator or investor. While the opportunities and strengths of one perspective could be a threat or weakness to another, these items contribute to the big picture, regardless of your role in the industry.
When reflecting on the lackluster growth of the travel industry and international travel during the last few years, experts have been pointing to recent geopolitical explanations as the cause for the lack of international travel to the U.S. But the reality is that the answer is economic, as the decline of international tourism has been weak since 2014. The true culprit has been the very strong U.S. dollar that began before the presidential election and continued afterward, making it more expensive for foreign travelers to come to the U.S. As a result, the U.S. travel and hospitality industries weakened. However, over the course of 2017, we've seen positive indicators that inbound travel to the U.S. will begin to pick up again; the U.S. dollar began to soften and tourism was up year-over-year from 2016.
North of the border, the Hotel Association of Canada (HAC), headed by Executive Director Susie Grynol, is taking a proactive approach to curbing multiple Airbnb listings. In a recent interview, Ms. Grynol elaborated on a three-prong approach to dealing with the increasing pressure that Airbnb (and other internet-based lodging companies) are putting on our industry.
Las Vegas reached a record number of visitors for the third consecutive year in 2016 with over 42.9 million visitors, an all-time high. Total gaming revenue for Clark County properties exceeded $9.7 billion that year, the highest level since 2008. Market-wide occupancy, average daily rate, and RevPAR reached levels not achieved since 2007. Through the first three quarters of 2017, the number of visitors have declined 1.1%, gaming revenues have increased 4.2%, occupied room nights have declined 1.0%, and average daily rate and RevPAR have increased 3.9% and 3.8%, respectively, compared to the same period in 2016.
The selection of an appropriate franchise affiliation affects a property's ability to compete in its local market, generate profits, and achieve a desirable image and market orientation. Because the success of a hotel is based primarily on the cash flow generated, owners and lenders must weigh the benefits of a brand affiliation against the total cost of such a commitment.
The U.S. lodging industry recovery from the depths of the great recession was characterized by strong growth in rooms revenue (RevPAR), concurrent with strict cost controls. This combination resulted in double-digit growth rates for profits from 2010 through 2014. Starting in 2015, market conditions changed. The pace of RevPAR growth slowed down, while expenses increased at their highest level of real change in the past 20 years. With RevPAR growth forecast to be somewhat muted for the next few years, the attention of owners and operators has how shifted on controlling expenses.
At a recent gathering, I was involved in a group conversation with hotel property investors who agreed that they have been "choking on the numbers" in certain U.S. hotel markets. Stated differently, their spreadsheet models explode once either acquisition prices or development costs are entered to evaluate hotel opportunities, especially in red-hot markets.
Reno, "The Biggest Little City in the World," has been rapidly changing over the last decade. Gaming and casinos have taken a back seat to growth in a variety of sectors and industries, including high-tech, health care, education, transportation and distribution, and manufacturing. The growth has been driven by Reno's proximity to California, abundance of developable land, central access to eleven western states, tax and business-friendly polices, skilled workforce, and high (and affordable) quality of life.
The definition of "select-service" within the lodging industry may vary from person to person, but there is no doubt that properties in this segment are the most popular among developers. Using the broadest definition of select-service, this category comprised an estimated 89 percent of the total hotel projects under construction according to the December 2016 U.S. Hotel Pipeline report from STR.