|By Jim Butler, Hotel Lawyer | Author of www.HotelLawBlog.com
20 May 2007 - At the recent Meet the Money® conference on hotel
financing, Bobby Bowers, Senior Vice President at Smith Travel Research
(STR) provided an overview of the U.S. lodging industry for the 12 months
ending March 2007. The results were very interesting and bode well.
Here are his slides and what we think they mean.
This supply-demand chart is a classic. It shows results since the late
1980s and dramatically illustrates how room demand growth accelerated from
late 2002 and has then gradually settled back down over the past few years,
while the growth in supply has been trending downward since the late 1990s
until it bottomed out 2006. Remember, these numbers are not the percentage
changes in the absolute amount of demand (measured by room nights) or supply
(measured by number of rooms), but reflect the percentage of change. The
crossover of supply and demand growth rates in 2007 is a significant event,
but does not, by itself, herald any impending doom, particularly given
the long period during which demand has been growing faster than supply.
This chart shows two of the most important components for measuring performance
in the hospitality industry: changes in occupancy and ADR. In evaluating
what the statistics mean, it may be useful to recall that the period from
1989 to 1993 marks one of the darkest periods in the hospitality industry
with thousands of hotel bankruptcies, and that the period from 1993 to
2000 marked some of the best years in the industry, the likes of which
still have not been equaled on an inflation-adjusted basis. Does the divergence
between occupancy and ADR that started in late 2004 have similarities to
the divergence that started in late 1993 or early 1994? How important is
it that occupancies are projected to actually decrease in 2007 as opposed
to merely moderating in 1994 through 1996? This is particularly interesting
when compared to RevPAR shown on the chart above.
ADR showed growth in all segments -- some more than others -- and this
chart gives a fuller picture as to where the downtick in occupancy has
This bar chart shows supply-demand information for the past four years,
as well as projections for 2007. It illustrates the pent-up demand that
has been accumulating since 2003, and why the small crossover in supply
growth -- now exceeding demand growth -- may be of less concern than it
would under other circumstances.
This chart dramatically shows all-time record levels of RevPAR increased
for 2004, 2005 and 2006. By any historic standards, a 5% RevPAR increase
is great! The question will be how long and how far RevPAR growth decreases
continue. There is still no cause for panic. There may be a wake-up call
around the corner, but the fundamentals are still so strong that this does
not signal an immediate problem.
Predicting what the future holds . . .
The STR predictions were as follows:
While these trends did not seem to surprise any of the delegates at Meet
the Money®, having the tea leaves and a tea leaf reader provided valuable
insights. Thanks again, Bobby!
Supply growth is accelerating
Demand growth is weak, but will accelerate
Construction costs remain a wild card Higher labor costs continue to be
Aggressive pricing will continue
Higher profits are expected
Continued RevPAR growth in 2007
Please send me your thoughts at email@example.com.
About the Author:
Jim Butler is one of the top hotel lawyers in the world.
GOOGLE “hotel lawyer” or “hotel mixed-use” or “condo hotel lawyer” and
you will see why. He devotes 100% of his practice to hospitality,
representing hotel owners, developers and lenders. Jim leads JMBM’s
Global Hospitality Group®—a team of 50 seasoned professionals with
more than $40 billion of hotel transactional experience, involving more
than 1,000 properties located around the globe. In the last 5 years
alone, they have brought their practical advice to more than 80 “hotel-enhanced
mixed-use” projects, a term Jim coined to fill a void in industry lexicon.
This term describes one of the hottest developments in real estate-where
hotels work together with shopping center, residential, office, retail,
spa and sports facility components to mutually enhance the entire project’s
excitement and success. Jim and his team are more than “just” great hotel
lawyers. They are also hospitality consultants and business advisors.
They are deal makers. They can help find the right operator or capital
provider. They know who to call and how to reach them. They are a major
gateway of hotel finance, facilitating the flow of capital with their legal
skill, hospitality industry knowledge and ability to find the right “fit”
for all parts of the capital stack. Because they are part of the
very fabric of the hotel industry, they are able to help clients identify
key business goals, assemble the right team, strategize the approach to
optimize value and then get the deal done. Jim is the author of the
Hotel Law Blog, www.HotelLawBlog.com. He can be reached at +1 310.201.3526