September 7, 2016 7:34 pm
Published by dg_admin
U.S. Hoteliers Operate in a Low Inflation Environment
Atlanta – September 7, 2016 – The magnitude of change in the major industry indicators is not pleasing U.S. hotel owners and operators. New development activity continues to accelerate, while growth in average daily room rates (ADR) has decelerated. The sluggish start during the first half of the year resulted in another downgrade by CBRE Hotels’ Americas Research of its forecast for the entirety of 2016.
“It has been very interesting dissecting the performance of the U.S. lodging industry during the first half of 2016,” said R. Mark Woodworth, senior managing director of CBRE Hotels’ Americas Research. “On the one hand, we are comforted by the continual growth in accommodated demand. After all, if people stop traveling, nothing else really matters. On the other hand, there continues to be a disconnect between the record occupancy levels and the inability of hoteliers to increase room rates.”
According to STR, U.S. lodging demand increased by 1.6 percent during the first half of 2016 compared to the first half of 2015. At the same time, hotel rooms supply rose by just 1.5 percent, resulting in a 0.1 percent boost to occupancy. With demand and occupancy on the rise, ADRs did increase by 3.1 percent, but this is less than the 4.1 percent pace seen during the first half of 2015 and the annual 2015 growth rate of 4.4 percent.
Based on the first half performance data, CBRE Hotels’ Americas Research adjusted its forecast for the year 2016. According to the firm’s September 2016 Hotel Horizons® forecast that was released at the STR Hotel Data Conference, U.S. hotels will enjoy a 0.1 percent increase in occupancy for the year, concurrent with a 3.5 percent rise in ADR. This results in a RevPAR gain of 3.6 percent. The occupancy forecast represents an improvement over the 0.1 percent decline presented in June 2016 edition of Hotel Horizons®, but the ADR and RevPAR forecast rates are 0.8 and 0.6 percentage points less, respectively.
The Reality of ADR
“Because changes in ADR have an over-weighted impact on profits, it is the metric most closely monitored by owners and operators. That is why everyone is disappointed with a reduction in the outlook for changes in ADR, especially with such high occupancy levels,” Woodworth said. “We have developed some thoughts as to why room rates are growing as they are. Some are very obvious. Others require deeper analysis.”
An analysis of ADR growth within each of the 60 markets in the Hotel Horizons® universe finds a fairly consistent relationship between changes in supply and changes in ADR during 2016. On average, the 25 markets projected to experience a supply increase greater than two percent are forecast to achieve an ADR rise of 2.2 percent. Conversely, the remaining 35 markets should enjoy an average ADR gain of 4.1 percent. The two percent mark was chosen because that is the long-run average annual change in supply for U.S. hotels. “When hotel sales and revenue managers look out the window and see construction cranes, they are reluctant to be too aggressive with their pricing policies,” Woodworth noted.
“When analyzing prices in any industry, it is common to gauge movements relative to the pace of inflation, or real change,” said John B. (Jack) Corgel, Ph.D., professor of real estate at the Cornell University School of Hotel Administration and senior advisor to CBRE Hotels’ Americas Research. “In real terms, the 3.5 percent nominal increase in ADR forecast for 2016 represents a 2.5 percent real change. This will be the eighth greatest real change in ADR since 1988.”
The Real Problem
“One reason we analyze real changes in prices is because the pace of inflation is typically a good proxy for changes in operating expenses,” said Corgel. “Unfortunately for U.S. hoteliers, we are starting to see a divergence between changes in inflation and changes in hotel operating costs.” According to the 2016 edition of CBRE’s Trends® in the Hotel Industry, hotel operating expenses increased by 4.7 percent in 2015. Given the 0.1 percent rise in the Consumer Price Index (CPI) for the year, this equates to a real expense change of 4.6 percent. The 4.6 percent mark is the greatest real change in expenses recorded by CBRE since 1978.
Two of the components keeping the CPI low are food costs and energy prices. Fortunately for hoteliers, these two costs declined 3.5 and 2.7 percent respectively in 2015. Conversations with hotel controllers indicate that these trends have continued into 2016.
While hotels are benefiting from declines in food cost and utility expenses, there are some expenses that are not directly tied to inflation that are cutting into hotel profitability. “Management fees, franchise fees and credit card commissions are all influenced heavily by changes in revenue. Therefore, with revenue growing, it is not surprising to see these costs growing from five to seven percent,” Corgel noted. “What is somewhat contrary to historical economics is the rising cost of hotel labor in such a low inflation environment.”
In 2015, hotel labor costs grew by 4.6 percent, the result of a 5.2 percent increase in salaries and wages and a 3.0 percent rise in employee benefits. “Increases in hospitality labor compensation primarily are attributable to the continued decline in the nation’s unemployment rate. With the unemployment rate expected to remain low, this will continue to put pressure on hotels to increase wage rates in an effort to remain competitive with other industries,” Corgel noted. “While hotels are enjoying significant real change in revenues, the realities of hotel expense growth represent a strong headwind against significant gains on the bottom-line.”
“We understand why hotel owners and operators are disappointed by the downgrade to our forecasts following a slow start to the year. Life at the top of the business cycle is characterized by moderate changes in performance. Through it all, it is important to note that we are forecasting continued, less volatile revenue and profit increases for the foreseeable future. That is not a bad combination,” Woodworth concluded.
To purchase copies of the September 2016 editions of Hotel Horizons® for the U.S. lodging industry and 60 major markets, please visit: https://pip.cbrehotels.com
CBRE Hotels is a specialized advisory group within CBRE providing brokerage, valuation, consulting, research and capital markets services to companies in the hotel sector. CBRE Hotels is comprised of more than 375 dedicated hospitality professionals located in 60 offices across the globe.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
Read More>>
September 1, 2016 6:29 pm
Published by dg_admin
New Position Adds Leadership to Support Development and Renovation Projects
ATLANTA, Ga. (September 1, 2016) – Hospitality Ventures Management Group (HVMG), an Atlanta-based, private hotel management company, today announced that John Edwards has joined the company as vice president of design and construction. In his newly created role, Edwards will work closely with the business development team, as well as brand and investor partners, to oversee new development and renovation projects. He also will be responsible for capital expense planning for the company’s owned and managed portfolio.
“Smart development, repositioning and renovation programs requires deep experience and expertise to create a hotel product that differentiates the property from its competitive set, control costs, and attract guests,” said Robert S. Cole, HVMG president and CEO. “We welcome John to the team during an unprecedented growth period at HVMG, with 2016 proving to be our most successful year since the company’s inception. His timely addition will serve us well as we transition into the second half of the year as we expect to add half a dozen properties to our portfolio and manage over $250M in new construction and capital projects.”
Edwards brings nearly 40 years of experience in hospitality and commercial real estate development, design and construction. For the last 15 years, his career consisted of senior management and project development roles with such prestigious companies as Omni Hotels & Resorts, Gaylord Hotels and Las Vegas Sands Corp. John is an architect by training and he has also held senior positions with such notable companies as RTKL Associates, Lodging & Hospitality Systems Group and Thompson, Ventulett, Stainback & Associates. He successfully led projects that included pre-development, pre-acquisition due diligence, programming, master planning and rezoning, as well as the procurement and management of design and engineering consultants and general contractors. He has worked on a broad range of hospitality projects that include resorts, convention hotels as well as spas and fitness centers. In addition to his hospitality experience, John has experience designing and developing luxury residential, retail, and commercial office buildings. Edwards holds undergraduate and graduate degrees in Architecture from Clemson University.
“Teaming up my expertise in hospitality development, design and construction with HVMG’s proven expertise in operations, revenue generation, and marketing systems will strongly position the properties under construction and renovation to realize their full potential,” Edwards said. “I look forward to working with the team to enhance operations, manage capital expenses and maximize profits, ultimately helping our properties to prosper and create value for our partners across all phases of the industry cycle.”
About Hospitality Ventures Management Group
Hospitality Ventures Management Group is a privately owned, fully-integrated hotel investment and management group that specializes in turning around and repositioning underperforming hotels as well as maximizing the performance of stabilized hotels. It currently operates 35 hotels in 16 states totaling 7,572 guest rooms. HVMG operates independent and boutique hotels, and resorts, as well as full-service, select service and extended stay hotels under the Hilton, Marriott, Hyatt, Starwood and IHG brands. Visit www.hvmg.com for more information.
Read More>>
September 1, 2016 6:27 pm
Published by dg_admin
Record 14th Annual Southern Lodging Summit Attendance Remains Upbeat
MEMPHIS, Tenn., September 1, 2016— Officials of the Southern Lodging Summit, an annual gathering of hoteliers specializing in development and operations in the southern United States, today announced that the event achieved record attendance. Additionally, the organization released the results of its second annual “State-of-the-Industry” report compiled from attendees’ opinions. Participants were queried on such topics as to which presidential nominee would likely have the “best” impact on the industry, social media, Millennial travelers and which recent issues have had the largest impact on the hospitality industry.
“With most industry prognosticators believing we are near or at the top of this phase of the current hospitality cycle, hoteliers are eager to learn how they can make the most out of the current economic environment for their hotels,” said Chuck Pinkowski, president of Pinkowski & Company and conference co-founder. “We believe the continued upbeat outlook has positively impacted attendance, with record numbers achieved at all of our scheduled events. Our combination of networking events and our distinctive panels that include content unique to our sector of the country have struck a chord with attendees. The bar for 2017 has been set that much higher.”
The “State-of-the-Industry” Report shed some interesting light on a variety of topics. Nearly 64 percent of respondents believe that Donald Trump could be better for the hotel industry, though the question was not intended to necessarily endorse any nominee. Minimum wage levels and the new overtime ruling were viewed equally (29 percent) as the two recent issues that have most dramatically impacted the industry of late. Presumably of great relief to newer brands targeted towards younger travelers, 44 percent of attendees felt lobbies were the most important improvement/renovation a hotel could make to attract Millennials. Perhaps most importantly, 69 percent and 61 percent respectively reported the belief that rate and occupancy will outpace 2015 levels. Full results of the poll are available at the SLS website: http://www.southernlodgingsummit-memphis.com/.
The day-and-a-half conference, held at the Memphis Cook Convention Center, began with its annual “Lunch with Speakers” at the world renowned Rendezvous BBQ Restaurant and evening cocktail party/dinner at the Peabody Hotel before a full schedule that included industry updates and outlooks from STR’s Jan Freitag, senior vice president of strategic development.
Additional panels included The Presidents’ Panel, moderated by Isaac Collazo, vice president of performance strategy and planning for Intercontinental Hotels, and featuring Alex Cabanas, Benchmark Hospitality International CEO; Mark Carrier, BF Saul Company Hospitality Group president; John Hamilton, Pyramid Hotel Group senior vice-president of business development; and Bhavesh Patel, ADM Hotels principal and AAHOA vice-chairman. Introduced by John J. Koshivos, vice president/managing director development for the southeastern region for Hilton Worldwide, Fred Kleisner, Caesars Entertainment/Aimbridge Hospitality independent director, gave this year’s keynote address. Stephanie Ricca, editor-in-chief at Hotel News Now, led a lively discussion during the “Money, Mindset & Marketing” panel, while Larry Spelts, vice-president of business development for Charlestowne Hotels, Inc., hosted “Leading the Market! Staying Ahead of the Dining Curve” panel featuring Bob Puccini, CEO and founder of Puccini Group; Michael Kitchen, vice-president of acquisitions & development at Aparium Hotel Group; Andrew Leber, senior vice president of asset management at CHMWarnick; and Peter Karpinski, co-founder and COO of Sage Restaurant Group.
Celebrating its 14th year, the Southern Lodging Summit was co-founded by Pinkowski & Company, an independent, Memphis-headquartered hotel industry consulting firm, and the Metropolitan Memphis Hotel & Lodging Association. The hospitality industry event brings together hotel professionals who target the southern and mid-south region of the United States for development and operations. The annual event draws a diverse group of owners, operators, sales executives, financial institutions, architects, attorneys, and hotel company representatives from more than 22 states nationwide.
Read More>>
