In an era of nonstop 24-hour news, even the slightest discouraging word can put a damper on the mood of an industry. Thus, nearly 2,000 executives gathered last week in New York for the New York University International Hospitality Industry Investment Conference fresh from a news cycle headlined by a less-than-positive report on jobs growth and downright bad news on housing starts.
As a result, the mood at the conference, at least initially, was one of caution: everyone agreed hotel industry fundamentals are gathering significant steam, but the state of the U.S. economy had some speakers and attendees wondering about the future.
At the conference’s opening session, several CEOs used the term “spotty” to describe the economic and hotel landscapes. The signs are mostly good, they said, but external factors — everything from natural disasters to political unrest to the unsteady economy — lead them to some caution.
“Given what happened in Japan and Egypt and the U.S. economy, it’s a choppy environment,” said Hilton Worldwide President and CEO Chris Nassetta. “Yet, I’m optimistic overall. Group pace is improving and shows no signs of weakness. I believe the second half of the year will strengthen, and the supply and demand fundamentals will drive it.”
While the CEOs expressed caution over world events and their effect on the lodging industry, they also cited the overall strength in the world economy as a hopeful sign. Starwood’s CEO Frits van Paasschen said the projected 4.5% growth in global GDP will significantly drive his company’s business.
And the talk of global economics quickly led the executives into their new favorite topic: the seemingly (in their minds) endless opportunities for hotel development, management and franchising in emerging markets, particularly China.
Each of the CEOs glowingly recounted their brand companies’ efforts to grow in China and elsewhere outside of North America. IHG’s new CEO Richard Solomons says the company has 150 properties in China with another 150 in the pipeline.
Three-fourths of Hilton properties under construction are outside of the U.S., and Kathleen Taylor of Four Seasons said only two of the brand’s 60 projects in development are in North America.
Of course, van Paasschen stole everyone’s thunder with his announcement that right after the conference he and his entire executive team were leaving for a month-long trip to China to immerse themselves in the country’s culture, as well as to do reconnaissance on potential deals and development opportunities.
The CEOs were also bullish on the potential of the hotel industry, particularly in the U.S., to finally gain momentum in rate growth. “The supply and demand fundamentals are the best I’ve seen in my career,” said Nassetta, “and that will lead to RevPAR growth fueled by rising rates.”
Later, Mark Lommano of Smith Travel Research reinforced Nassetta’s observations. STR is predicting an 8% rise in RevPAR for U.S. hotels this year, half of which will come from rate growth. In 2012, RevPAR will grow at about the same level (8.1%), but rate will account for three-fourths of the increase.
Capital flows to the hotel industry also have a global connection.
In a panel of members of the Industry Real Estate Financing Advisory Council (IREFAC), Mark Elliott of Hodges Ward said so far this year half of the transactions his firm has brokered involve capital coming from outside of the U.S. from places such as the United Arab Emirates, Kuwait, Asia and even Europe.
“Typically, international capital inflows to the U.S. lodging industry represent about 4% of the volume,” said Elliott. “Obviously, that’s ticked up quite a bit in recent months. Instead of waiting for returns on the back end, these investors are looking for current cash flow.”
These financing executives also expressed concern about restrictive U.S. visa policies and how they will affect hotel performance and value.
“If the U.S. can’t get its act together on visa policy we’ll see in the next decade or two massive growth in in-bound travel to Europe, which is great for those who have invested in Europe or operate there,” said Marriott International President & COO Arne Sorenson.
“The ability of foreign travelers to come to the U.S. is the biggest upside the hotel industry has,” continued Sorenson. “We may do well if we don’t do anything because demand will grow among Americans and from European travelers, but the real upside is if we can get the Chinese and Brazilians and the Indians here, it will drive millions or tens of millions of roomnights a year.”