A five-star outlook.

Author:Bell, John

The hotel market is looking strong in 2014, with demand picking up and supply under control. Analysts see nothing to give them reservations about the outlook.

The U.S. lodging market is in the midst of a steady recovery. Demand is increasing in the face of limited new supply--boosting occupancy. At the same time, average daily rates (ADRs) and revenues per available room (RevPARs) are also on the upswing. [paragraph] Favorable financial factors are making hotels an attractive target for both lenders and investors. [paragraph] Even so, some industry sources caution the market still has a ways to go before reaching pre-recession highs. [paragraph] "We're in the fourth inning of a nine-inning game," asserts Jeffrey Davis, a managing director in the New York office of the Jones Lang LaSalle Hotel and Hospitality Group, a division of Chicago-based Jones Lang LaSalle. [paragraph] Reflecting the general upturn, Smith Travel Research (STR), Hendersonville, Tennessee, reports a 5.4 percent increase in RevPARs for year-end 2013 over 2012. Occupancies were up 1.5 percent and ADRs up 3.9 percent for year-end 2013 over 2012.

Seeing widespread recovery

Most sources peg 2010 as the turning point for hotel recovery and concur that it's been a slow, steady recovery since then.

Steve Rushmore, chairman of the Industry Real Estate Financing Advisory Council of the Washington, D.C.-based American Hotel & Lodging Association (AH&LA) and founder of HVS Global Hospitality Services, says the turning point came early in 2010 when the economy started to improve and people started traveling again.

"Geographically, it's an across-the-board recovery encompassing the major markets," he notes.

"Hotel demand is closely tied to GDP [gross domestic product], so growth in demand has been sluggish. But there's been no significant increase in supply, so occupancies have increased. The result is fairly strong demand, offsetting the fact that there's not much increase in new supply."

Kevin Mallory. senior managing director in the Chicago office of CBRE Hotels, a division of Los Angeles-based CBRE Inc., says, "We're well into hotel recovery. It started in the second quarter of 2010 when demand exceeded supply growth for the first time in several years. The market is positive, with strong demand growth and low supply growth."

R. Mark Woodworth, president of Atlanta-based PKF Hospitality Research LLC, agrees that demand has recovered and says it's been increasing every quarter since first-quarter 2010. PKF Hospitality Research is a division of San Francisco-based PKF Consulting USA LLC, a national management consulting firm specializing in the hospitality industry.

Sam Winterbottom, senior managing director, hotels, in the Atlanta office of New York-based Newmark Grubb Knight Frank, a global real estate services firm, agrees that it's a broad recovery with some markets outpacing others.

"It started out on a bicoastal basis but became broader within a year." he notes.

In a joint interview, Jones Lang LaSalle Hotel's Davis and Matt Comfort, also a New York-based managing director with Jones Lang LaSalle Hotel and Hospitality Group, concurred that the hotel market began its recovery in the second half of 2010. They said market fundamentals hit their stride in the second half of 2011.

Davis says the hotel market is currently in a "solid recovery" with strong fundamentals in all markets and strong demand growth. Comfort cites a strong market-by-market hotel recovery.

"RevPARs have had modest but steady growth, fueled primarily by occupancies," Comfort says.

Tom McConnell, an executive managing director and the U.S. head of the Global Hospitality Group for New York-based Cushman & Wakefield, cites an across-the-board recovery that started in the third quarter of 2010.

"There's been a good ADR recovery and RevPARs are also up, with steady growth in occupancies," he explains.

Two sources peg the start of hotel recovery somewhat later. They are Ted Mandigo, managing director. Midwest, in the Elmhurst, Illinois, office of Zug, Switzerland-based Horwath HTL Limited, international hotel consultant, and Steven Marx, president of Chicago-based Hotel Source Inc., hotel broker.

Mandigo pegs the start of the hotel recovery at 2011 and describes it as having been slow and steady economically, but uneven geographically. "Some markets have expanded rapidly and some are way behind the curve," he observes.

Marx identifies the first quarter of 2012 as the start of hotel recovery and concurs with others that it's been slow and steady. "Revenues have been rising month after month," he notes.

What effect has the sluggish...

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