Los Angeles - Jan 27, 1998 - The hospitality sector will likely reap record profits in 1998, the third straight year the industry has achieved record levels, says a leading industry report released today. The 1998 National Lodging Forecast released by EY Kenneth Leventhal Real Estate Group, a business unit of Ernst Young LLP, projects further impressive growth in hospitality markets, particularly at the upper end of the service scale. While this spells potential bad news for travelers - in the form of higher room rates - hotel owners and operators as well as the myriad service companies supporting the sector should see strong gains in the year ahead as a result of the industry's buoyancy.
"Part of the hotel industry's success today lies in the availability of cheap financing as represented by Wall Street and other mortgage lenders and an acute interest on the part of real estate investment trusts (REITs) in acquiring hotel assets," says M. Chase Burritt, National Practice Leader of EYKL's Hospitality Services Group.
There are now a dozen equity REITs actively acquiring hotel properties and the total value of hotel assets owned by REITs is over $13 billion, according to figures recently assembled by CB Commercial's National Real Estate Index. In fact, Burritt expects REITs to become the "take-out" lender of the future for the hotel industry replacing insurance companies, who have held the mantle for the last twenty years.
"The growing public nature of the hotel market as dictated by securitization has brought with it a certain amount of discipline and stability. This has helped hospitality companies to better manage their assets and realize greater value through their efficient operation," Burritt said.
"Full-service luxury hotels, particularly those in major downtown markets such as New York, Chicago, Los Angeles, Houston, San Francisco, Seattle and Boston, continue to post high annual occupancy figures and steady growth in average daily room rates," Burritt continued. "Our declaration of last year that in downtown markets, at least, there is very little if no room at the inn, still holds true today. Upper-end rooms remain hard to come by unless booked far in advance. However, Burritt noted that in some key markets - New York, San Francisco, Boston and Seattle - new hotel development plans are now clearly taking shape. Development in most of these markets will take place over the next two to three years and will result in additional capacity coming on line in 2001. Until then, Burritt cautions, the rule for both business travelers and vacationers is to book early.
Burritt went on to add that other upper-end hotels, notably destination resorts, are also experiencing strong growth. He attributed this mainly to the vibrant national economy spurring more Americans to vacation in locations once considered too pricey.
Much of the success of the hotel market in the last four years has been attributable to the gradual absorption of the slew of new hotels built in the 1980s and a limited level of new construction. This year's EYKL forecast points to continued high levels of new construction in the limited-service segment of the industry. As a result, Burritt and his group of more than twenty practice specialists spread across the country, advise some caution in lower segments of the industry, especially in the Southeast where a few markets continue to deliver new product at a breakneck pace.
However, limited service markets in the Northeast, Northwest and California
show relatively little new development at the lower end of the hotel scale
and probably provide opportunities for developers over
the short and mid term.
The National Lodging Forecast is produced each year by the Hospitality
Services Group of EY Kenneth Leventhal Real Estate Group. The Forecast
includes synopses of more than 20 major hotel markets as
well as detailed analyses of the four main segments of the hospitality industry. The 1998 Forecast also includes overviews of the hotel market in Mexico and the hotel financing market in the U.S.
The EY Kenneth Leventhal Real Estate Group is a business unit of Ernst Young LLP. Ernst Young LLP provides assurance and advisory business services, tax services and consulting for domestic and global clients. The firm has 25,000 people in 112 U.S. cities. World-wide, the Ernst Young organization has more than 72,000 people in more than 660 locations in over 130 countries. Visit the EY Kenneth Leventhal Real Estate Group Web site at http://www.ey.com/realestate.