January 25, 2010
By Jason Q. Freed
If you listened closely, a collective “sigh” could be heard wafting through the warm San Diego air on Monday.
Hoteliers who gathered for the ninth annual Americas Lodging Investment Conference can breathe a sigh of relief that 2009—one of the worst years in lodging history—is over. Now they’re focused on the best recovery strategies, and forecasters are all over the map trying to pinpoint exactly how long that recovery will take.
“I’m not sure any of us have a true sense of what 2010 will look like,” said Ed Walter, president and CEO of Host Hotels & Resorts, during the opening general session.
Panelists seemed as if they truly wanted to bring a fresh, optimistic perspective to kick off 2010 in the hotel industry, but the data just isn’t there to support it.
Instead, panelists used numbers to illustrate how deep wounds from 2009 really were. Group demand, which drives a significant portion of the industry’s revenues, was decimated, partly because of economic conditions and partly because of the negative rhetoric on holding corporate meetings.
“I don’t think any of us expected to be down 18 percent in group demand [at the end of 2009]. And that was mostly cancellations,” said Gary Mendell, CEO of HEI Hotels & Resorts. “This is unprecedented. I don’t think anyone could have foreseen anything like it.”
Data trackers like Smith Travel Research knew 2009 was going to be bad, but they didn’t anticipate the fundamental declines the industry realized across the board.
“Every single month in 2009 the industry sold between 5 and 7 million less rooms [than 2008],” said Mark Lomanno, president of STR.
Lomanno said construction on more than 50,000 rooms began in 2009, contradicting the popular belief that supply had come to a near standstill. And not as many hotels closed their doors as expected because lenders are either negotiating new terms or are simply overwhelmed with underwater borrowers and can’t get to the paperwork, panelists said.
“A lot of borrowers are giving up, but lenders are saying they don't want the keys,” said Arthur de Haast, CEO of Jones Lang LaSalle Hotels.
But with 2009 past us, hoteliers are eager to start off 2010 on the right foot. Representatives from STR, PKF Hospitality Research and Jones Lang LaSalle Hotels all agreed year-over-year demand will be positive by the end of the year.
“We’ve just seen the light come on here in the U.S., and we’re excited about 2010,” de Haast said.
Mark Woodworth, EVP of PKF-HR, pointed to Q3 2010 for the first signs of revenue per available room growth. It won’t be until 2011, he said, when the industry sees average daily rate growth.
“We think 2010 will be a better year, but it will be 2011 before we see significant improvement,” Lomanno said.
He was bearish on rate, saying the industry still is suffering from deep discounting.
“I’m having trouble convincing myself that the industry is going to embrace an aggressive pricing strategy,” he said. “I don’t know if they should, but they should definitely be looking at it.”
Lomanno presented STR’s forecasts for 2010 and 2011:
| |
2010 |
2011 |
| Supply |
1.8 |
1.0 |
| Demand |
1.8 |
3.2 |
| Occupancy |
0.0 |
2.2 |
| ADR |
-3.2 |
2.0 |
| RevPAR |
-3.2 |
4.2 |
Tom Baltimore, president of RLJ Development, said he doesn’t think the industry will have the “springboard effect” many were hoping for.
But the industry’s fundamentals are still intact, panelists said, and once the credit markets loosen and unemployment rates improve, the industry will recover.
“People still want to travel, still want to do business the conventional way, but it’s not time yet,” said Mike Shannon, managing director of KSL Capital Partners.
Jay Shah, CEO of Hersha Hospitality Trust, said certain pockets in his portfolio are already experiencing 90-percent occupancies.
“Once we get past this quarter, which we think will be a choppy quarter you won’t really be able to get anything from, we’ll be able to play a little with raising rates,” he said.
