The Lodging Conference was, quite literally, a “hot” one with lots of hot insights, hot deals, hot political debates, and exceptionally hot temperatures. Here are Aperture CEO Charles Oswald’s key takeaways from this year's meeting of hotel owners, investors, and operators.
The Fed’s interest rate change resulted in no change in hotel values… at least, not yet. The -50bps reduction in interest rates has not affected hotel values just yet. The long-anticipated reduction was already built into pricing. This static valuation is despite reports of current CMBS5-year being generally priced -100bps, vs. one year ago. 50bps may not have been enough to materially accelerate the pace of transactions, and this week’s inflation and jobs reports may slow the pace of future rate cuts.
Softening 2024 RevPAR projections. CoStar has reduced2024 calendar year growth expectations to 2% in their August report. However,if we factor in preliminary September figures, it’s more likely that 2024 will finish closer to +1.5% year-over-year growth. The first three weeks of November are particularly soft, as the traveling public and travel planners await election results before booking travel. Travelers don’t like uncertainty.
Will election results impact hotel values? In addition to a three-week slump in booking pace around the upcoming election, panelists and attendees debated how candidate policies around taxation, regulations,tariffs, and labor might impact hotel operations and valuations. But most panelists agreed that NLRB policies could potentially have the greatest impact to hotel operations and subsequent valuations. At the local level, policymakers in NYC and LA continue to threaten hotel values and how managers operate.
Are we turning the corner with rebounding demand? US demand has grown four of the last five months, following a session of 10 consecutive periods of decline. Air travel and transient demand have set new records. National demand growth is almost entirely concentrated in Northeast cities, which have generally lagged in terms of post-pandemic recovery.
Bifurcation by price class persists. Demand and ADR for Economy, Midscale, and Independent hotels continue declining, even as higher price classes perform well. Younger, blue-collar travelers feel the pinch as credit card and auto payment delinquencies continue to rise. The luxury tier is BOOMING with +10.3% demand growth August YTD, and upper-upscale hotels are the only price class where ADR is keeping pace with CPI. Customers are clearly gravitating toward experiential lodging, while capital is erring toward more simplified lodging investments with lower labor exposure. This trend also indicates that our present economy is pressuring blue-collar and lower-middle-class workers.
Decline of the one-night stay. There is an accelerating decline in one-night, mid-week stays. The emerging trend may suggest a sticky trend of businesses favoring Zoom calls over traveling for short client meetings. Counterintuitively, the average length of stay is concurrently declining.
Group demand continues to charge forward. Group demand, especially small and mid-size corporate meetings, has bolstered US demand for 8 of the last 9 months YTD (except for May). Total Group demand is now just -8% below 2019.
We’re amidst a WeekEnd to WeekDay demand shift. Weekday demand is very slowly improving as Weekend and Shoulder demand is declining due to workers very slowly returning to the office. Weekend occupancies are also affected by an increase in the mix of international outbound travel, as opposed to domestic travel.
ADR growth is lagging inflation. Real rate growth has fallen behind in the South and West, while the Northeast and Midwest are keeping up with CPI. But let’s not forget that these growth markets are the same ones that were so far behind in recovery from the pandemic. Managers must be increasingly creative with expense controls.
You can beat the odds with the right management company. Is your management company on top of these trends? Every market has a unique thumbprint. The right management company can bring a fresh approach to market share growth strategies, impact expense controls, and uncover hidden business potential that others may miss. Let us know how Aperture Hotels can help you!
