Today’s U.S. lodging market: Rerun or season premiere?

The stars have aligned, and the fundamentals of the U.S. lodging market are simultaneously favorable to buy, sell and develop hotels.

Industry participants are deliberating whether the market is experiencing a paradigm shift or if history is merely repeating itself. There is reasonable evidence on both sides of the debate that should be evaluated carefully to gauge where the market will be in the near future.

Here is some evidence the market is more robust than ever before:

  • The U.S. economy is experiencing steady growth by way of emerging domestic energy markets, declining gasoline prices and strengthening consumer confidence.
  • Developing middle classes around the world are generating new travelers that want to explore new destinations, particularly the United States.
  • Foreigners perceive the United States as the gold-standard destination for investing and preserving capital.
  • Group demand for transient accommodations has finally rebounded to prior peak levels.
  • Relatively limited construction financing for new hotel development has positioned the industry to achieve occupancy levels not seen in 30 years.
  • Advances in technology continue to increase operational efficiencies, contributing more than US$40 billion in industry net operating income.

Obviously that’s all great, but here is some bad news:

  • Hotels do not benefit from long-term leases or credit tenancies. In other words, hotels are highly susceptible to uncontrollable events and/or forces that can swiftly and dramatically impact lodging demand and/or room rates.
  • With innovations like Airbnb and Hotel Tonight, changes in technology are occurring at a scale that was previously unimaginable and have the potential to siphon a significant number of hotel room nights from the market going forward.

As for me, I am confident of the following:

  • An event that has a negative impact on the sector will happen. What the occurrence ends up being, when it transpires and the magnitude of the occurrence are anyone’s guess.
  • Interest rates and inflation will rise; the scale of these increases remains unknown.
  • The United States will encounter another economic recession. Again, the timing, duration, depth and breadth of such an event is unknown.
  • The lodging sector is cyclical and experiences dramatic highs and manic lows. However, each peak tends to exceed the high point of the prior cycle.

What do you think? Are we watching a widely anticipated season premiere or a rerun of a show many have seen before?