A survey conducted by Ernst & Young and The Economist Intelligence Unit showed a significant increase in optimism among hospitality CEOs worldwide over the past six months.
A full 79% of hospitality CEOs said they were optimistic about the prospects for the economy, compared to only 57% six months ago. It appears hospitality CEOs are more optimistic than executives in most other economic sectors, as the survey showed overall CEO optimism at only 66%.
“With people starting to travel again and demand for hotel rooms increasing, hotels are once again becoming attractive investments,” Daniel Edward Craig, a Vancouver-based hotel industry consultant said.
Increased optimism reflects increased RevPAR as the world economy strengthens.
“A year ago hotel owners and operators were coming off six months of negative RevPAR. RevPAR has been positive over the last 12 months and is expected to be so over the next 12 months,” Mark Eble, senior vice president for PKF Consulting USA said about the U.S. market. “Demand growth has been stronger than we anticipated it to be over the past 12 months.”
Also increased investment in hospitality real estate is fueling a sense of optimism. While regions of Asia continue to see a wave of new construction, in Europe and North America where the new supply line is low, the purchase of distressed properties has been steady, especially among the well-capitalized REITs in search of bargains.
“The investment activity has already been very strong for the better part of a year,” Geoff Davis, president of Denver-based Hospitality Real Estate Counselors said.
The optimism does not extend to rate growth in the U.S., though. Rate expansion continues to limp ahead, a trend industry experts don’t expect to change soon due to the widespread industry practice of discounting.
Amanda Dennis, a hotel industry consultant based in Colorado, said U.S. hotels are holding back in increasing rate due to fear. “I think a lot of people are afraid to be a market leader in increasing the rate,” Dennis said. “We saw the same thing back with 9/11. The first thing we tend to do is start discounting, and now with the flash sales and aggressiveness of the OTAs, there are a lot more distribution channels and they all want to discount.”
Dennis recommended that hotels study demand more closely before implementing discounted and flash sale promotions. “In this industry, we discounted, we tend to make it our first line of defense rather than the last. We tend to discount to aggressively,” Dennis said. Trying to recover, it’s a really slow trip back up. You have to know the demand first. If demand is the issue, you’re basically giving money back that was in your pocket to start with.”