By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
17 January 2014
The article below was first published by HotelExecutive.com (© 2014) and cannot be republished without permission.
Hotel Industry Outlook: Jim Butler's Top 10 for 2014
Jim Butler | Chairman, JMBM's Global Hospitality Group®
Top 10 for 2014 -- Hotel Executive Annual Outlook
A lot of exciting things are happening in the hospitality industry as 2014 opens. Based upon more than $68 billion of hotel transactions, JMBM's Global Hospitality Group® has made its "top 10" pick of the events, issues, trends, and developments that will have the biggest impact on the hotel industry.
1. 2013 will prove to be better-than-expected, but 2014 will get even better. Sunny times ahead.
Better-than-expected results for 2013 will lay a solid foundation for continued growth and profitability over the next several years. Supply growth will be only about .8% - well under the long-term average of 2%. Demand growth will exceed projections, probably reaching 2.2% to 2.4%. Most importantly, ADRs have been increasing at about 4.4%, bringing disproportionately greater profit straight to the bottom line. And finally, RevPAR growth will be somewhere in the range of 5.6% to 5.9%. The numbers for the upper end of the market segments are even better.
Depending upon whose numbers you select (STR, PKF and Pwc), 2014 just gets better. Supply growth will edge up to 1.1%. Demand will grow at somewhere between 2.1% to 3.1%. Occupancy growth will approach 2%. ADR growth will range up to 5.2%, with RevPAR growth between 6.0% and 7.2%. At the luxury end of the market, RevPAR growth is projected to grow at 8.3% in 2014.
These sound industry fundamentals are reinforced by the improving American economy. Recently revised GDP growth for the third quarter 2013 is at 4.1% -- the strongest advance in nearly two years and only the third time the economy has expanded that quickly from one quarter to the next since 2006.
Although this is expected to moderate in the fourth quarter of 2013, GDP growth for 2014 is expected to be strong, accompanied by lower unemployment, increased consumer spending, more exports, revitalization of the home building industry and weaning the economy off of Fed bond purchases.
There is a remarkable relationship between growth in GDP and growth in employment on the one hand and the health of the hospitality industry on the other. The confluence of strong industry fundamentals and an improving economy signals a forecast of more sunny days ahead for some time to come.
2. This will be a great time to buy and sell hotels.
Transactional activity has been building and will continue to do so. In 2013, the industry will record about $18 billion of hotel transactions, compared to $13 billion in 2012 and $19 billion in 2011. This is not close to the frothy levels of $23 billion in 2005, $31 billion in 2006 and $27 billion in 2007. But it represents a vibrant, and probably more sustainable level of activity - well up from the $2 billion nadir of transactions in 2009 - without the risks of a bubble market.