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Counting Our Blessings

While Upcycle Comes To End In 2019 Still Plenty To Like About Lodging Industry

Friday, December 20, 2019
Dennis Nessler
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As we approach the holidays it’s time for the annual tradition of reflecting on the year gone by in hospitality, and just as importantly, looking at may what lie ahead in 2020.

For starters, the mega merger movement continued during the past year, albeit on a slightly lesser scale. This time the consolidation was not on the brand side, but rather with owners and operators. The big deal involved Aimbridge Hospitality and Interstate Hotels & Resorts finally joining forces after months, or even years, of industry speculation.

The REIT landscape changed slightly as the result of a couple of deals, including the Park Hotels acquisition of Chesapeake Lodging Trust. In another meaningful transaction, Hospitality Properties Trust changed its name to Service Properties Trust following the $2.4 billion acquisition of a net least service retail portfolio from Spirit MTA REIT.

Meanwhile, within the brand universe, most of the major changes were confined to the executive ranks. Just within the last month, both Ken Greene, president of the Americas, Radisson Hotel Group, and Greg Mount, CEO of Red Lion Hotels Corporation, have vacated their respective posts. Both companies are in the process of conducting searches for their replacements. Earlier this year, Heather McCrory took the helm at Accor as president/CEO.

But the biggest story this year for the industry is without a doubt what appears to be the end of the longest upcycle in recent history. Unfortunately, the downward statistical revisions just kept coming from the leading research firms, who began the year with projections of modest 2 to 3 percent overall RevPAR growth for the U.S. lodging industry. By the end of the year, however, the latest STR forecast is anticipating overall RevPAR growth of 0.8 percent this year.

Perhaps the most meaningful evidence is the fact that September and October marked two consecutive months of RevPAR declines. According to STR’s Jan Freitag, this is the “official definition of a down cycle.” Freitag added that overall occupancy has also declined in 5 of the past 9 months.

But the good news is this seems to be very much the ‘soft landing’ that many of us had hoped for years ago. For some historical perspective, it is nothing like the last recession, which started in 2008 when RevPAR dropped some 20 percent, for example.

According to STR, when Lehman Brothers filed for bankruptcy on September 15, 2008, RevPAR growth for the previous 12 months was 2.5% nationwide. After the filing, 2008 ended up being down 3.1%. Eight months later in May 2009, monthly RevPAR declines bottomed out at 20.4%. The 12-month period ending October 2009 revealed a 16.8% RevPAR decline.

In fact, even the recession before that was far more severe. In 2001, RevPAR had already declined for five months before the 9/11 attacks. That month, however, RevPAR plummeted 23.2% across the U.S. Nine months later in June 2002, RevPAR declines bottomed out at 10.2% for the 12-month period, according to STR.

Those are the kinds of numbers that make people want to shut the lights and put a for sale sign up. The good news is that doesn’t figure to be the case in 2020. STR has projected RevPAR growth of 0.5 percent. In addition, supply continues to tick up to 2.0 percent growth for the next two years outpacing demand at 1.8 and 1.5 percent, respectively.

So the fundamentals that have driven much of the growth of the last decade have taken a turn for the worse. However, there is still plenty to be bullish about. The economy continues to hum with record low levels of unemployment and global interest in travel is at an all-time high. Furthermore, hotel stocks actually rallied in December indicating investor interest remains high in the sector.

Things can always be better but they can always be worse too. In the spirit of the season it’s a good time to count our blessings in this industry and give thanks for what was by and large another good year for hospitality.

Dennis Nessler    Dennis Nessler
Hotel Interactive®, Inc.
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