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Hotel Sector Continues to Rebound

ATLANTA—The hotel industry is rebounding in 2013, and four hotel industry CEOs and two industry forecasters predicted slow but steady growth for the sector at the 25th annual Hunter Hotel Investment Conference in Atlanta.

“I think 2012 has the potential to be just as strong as 2012,” said Wayne Goldberg, president and CEO of La Quinta Inns. Memorial Day bookings are strong, which are a good indicator of the summer. Looking further ahead, a growing world population will increase demand for hotels, he said. Goldberg added that with little construction having taken place in recent years, supply is in check. And there is now room to grow; his company started construction on 10 new hotels in 2012, and will begin building 12 to 14 more in 2013.

Steve Joyce, president and CEO of Choice Hotels International, was the most cautious of the four hotel CEOs, predicting “2013 will be a good year but not a great year.” Joyce said that sequestration will dampen hotel demand. But he forecast that business would pick up at the end of the year and continue in 2014 and 2015.

Joyce predicted 5 percent growth in revenue per available room (RevPAR), noting that if people have to spend two hours in a security line to get on a plane, start to see $5-a-gallon gas, and get hit by a big increase in health insurance premiums as new health regulations go into effect, they may postpone vacations. “My view is that we have got as much that can hold things in place as that can lift us.” Joyce said.

Richard A. Kessler, chairman and CEO of The Kessler Collection, a boutique hotel investor, said his group is investing in 4 to 5 new hotels around the country, and “we are confident that the rates we can retain will justify this investment, in foreseeable future.” Kessler’s company sold three properties to “clean up our balance sheet,” poising the company to launch a growth program.

When demand by groups for hotel space dropped, Kessler’s brand replaced it with transient business, but group business has picked up again in recent months.

Mark G. Laport, president and CEO of Concord Hospitality, said his company has 12 hotels under construction, the most in their 28-year history. Noting that the industry is not oversupplying rooms, this is a “good time, a good place, with great financing, and brands are stronger than they have ever been,” Laport said.

Inside the numbers

Smith Travel Research reported a 39.9 percent increase in hotels construction year over year in February 2013, and a 10.1 percent rise in hotel rooms in the active pipeline compared with February 2012. The company predicted a 1.5 percent increase in supply in 2014, but a 2.8 percent increase in demand, a 4.6 increase in average daily rate (ADR) and 6 percent in RevPAR, according to Jeff Higley, vice president of digital media and communications.

Occupancy rates have been stronger than expected, and occupancy rates, ARD and RevPAR are expected to grow modestly, according to a report presented by R.  Mark Woodworth, president of PKF Hospitality Research LLC, of Atlanta. Woodworth’s report quipped: “What should we be worried about? Nothing. The fundamentals are solid!”

PKF’s report forecast steady improvement in leisure and hospitality employment, real personal income and rooms sold through 2017, with a sluggish recovery in total employment spoiling the otherwise rosy predictions.

Supply of new hotels is very limited, as occupancy rates are rising, PKF reported.  Luxury hotel chains, such as the Ritz-Carlton and Four Seasons, experienced 11.2 percent growth in 2011 in RevPAR in 2011, and PKF predicted 7.8 percent in 2012 and 6.9 percent in 2013.  All classes of hotels experienced an 8.2 percent RevPAR increase, with 6.8 and 6.1 percent predicted for 2012 and 2012 respectively.

Economic uncertainty will slow transactions, and the industry will experience “lower-than-normal levels of buying and selling in the market,” which will diminish new construction, Woodworth predicted.

Hotel property values will “pop” once uncertainty begins to dissipate and double-digit NOI  growth is sustained, predicted Woodworth.

New York is the leading market for new construction from 2012 to 2016 (4.3 percent) followed by Austin, Ft. Worth, Pittsburgh, New Orleans, Nashville, Houston, Miami, Philadelphia and Long Island. Lagging markets, those with little or no supply increase, include San Francisco, Sacramento, Atlanta, Detroit, Oahu, Phoenix, Anaheim, Oakland, Albuquerque and Kansas City. 

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