2007 U.S. Hotel Industry Outlook: An Optimistic But Cautionary Tale
By Clyde Guinn Senior Vice President, Stanford Hotels | April 01, 2010
All the lodging metrics appear to tell us that 2006 was a remarkable year for the industry. On average, room demand has steadily increased month over month and room rates and occupancy are up from 2005 - yielding a third consecutive year of revenue growth for U.S. hotels. And, it appears that each sector from full-service to limited has reaped the rewards.
Reflecting this bullish perspective, hotels were a hot investment commodity and everybody from large investment firms to small REITs snapped up properties in key markets this year. Moreover, new construction has been constrained by an exponential increase in development costs, thereby limiting future competition and increasing the equity of existing supply.
With such a rosy outlook it is easy to forget that industry performance is cyclical. Experience demonstrates that meteoric growth cannot be sustained and will eventually soften or even deflate. In addition, the country's economy has historically experienced a recession in the early part of each decade and clearly the lodging industry will be adversely affected in the likely event that history repeats itself.
And while we have learned a lot from 9/11, and are now better prepared, neither the country nor the industry is yet impervious to the damaging ripple effects of such a terrorist event. Another attack could once again severely limit the demand for lodging accommodations.
What does this mean for hotel owners and operators?
While capital is available during this peak in the cycle, we should now be investing, or re-investing, in our properties. Taking the time and money to upgrade our hotels now, particularly in the technology arena, will set us apart from competition and serve to fortify our portfolios when times are tough.