Despite some unknowns when it comes to travel—including currency exchange rates and political troubles abroad—the hotel industry’s comeback should continue throughout 2015, says Jan D. Freitag, senior vice president of STR, a global provider of research to the hotel industry based in Hendersonville, Tenn.
NREI: How is the U.S. hotel sector’s comeback evolving?
Jan Freitag: The U.S. hotel industry in 2014 had one of its best years ever, and we broke a number of records. We had more rooms available than ever, sold more rooms than ever, made more room revenue than ever and had the highest average daily rate (ADR) and the highest rev par on record. The occupancy rate will top an all-time record sometime during 2015. So overall, it’s a very, very healthy environment and we expect at least 24 months of smooth sailing ahead.
NREI: By how much were the U.S. hotel industry records broken last year?
Jan Freitag: The number of rooms available was around 1.8 billion room nights (as opposed to actual rooms). We sold about 1 billion of those and made about $133 billion in room revenue in 2014. The ADR was $115 and the rev par was $74.
NREI: How long do you think this positive period will last?
Jan Freitag: We project positive rev par growth this year and next year. And it’s probably not too much of a stretch to presume a good, healthy rev par in 2017, but we’re not quite leaning our neck out the window that far yet. The impact of new supply will be felt in 2016, and it’ll be interesting to see how operators react as new hotels open.
NREI: Which domestic markets do you believe will benefit the most?
Jan Freitag: Right now we are seeing the coastal markets doing very, very well, led by New York City and San Francisco, with annualized occupancies in 2014 of over 84 percent. There are also specific markets that will continue to do well—Nashville, Denver and Houston are probably on the list.
NREI: What economic influences do you see, both domestically and abroad?
Jan Freitag: Domestically, what’s going to be interesting to monitor [are] construction costs, which may put a slight damper on new construction. Also, labor costs are going to continue to be a topic in cities like Los Angeles and Seattle, where labor costs have increased just for hotels. That’s going to be an issue.
Globally, it’s going to be interesting to see how currency exchange rates impact travel to the United States. Just in December, hotel rooms on the East Coast were at least 10 percent more expensive if you had to pay in Euros. But at the same time, if you look at Europe—at, say, Paris, Berlin and Warsaw—the rooms are 10 percent cheaper if you pay in U.S. dollars. So it’ll be interesting to see if people traveling next summer for their vacations, which are planned in March and April, decide to go where it’s cheaper, which means mainly going to Europe.
But generally, we expect continued smooth sailing in the United States. There is an uptick in the pipeline, so the number of rooms under construction today is up over 31 percent from December 2013. That will have an impact on performance in specific markets going forward. But overall, all is well.