The overriding outlook this week at The Americas Lodging Investment Summit (ALIS) at the JW Marriott in downtown Los Angeles was “cautious optimism,” of course.
“Cautious” is the key word here compared to how the tea leaves were being read the same time last year when from an American perspective much more confident optimism prevailed. Others suggested this week that headwinds are starting to blow stronger and market clouds are clearly on the horizon, which should translate into greater uncertainty about near-term trading and development scenarios.
Thought leaders agreed market conditions are very fluid, potentially changing day-to-day, as geopolitical and macro-economic statuses remain ever so volatile. This uncertainty makes prognostication much more complicated and currently seems to have everyone looking over their shoulders more often in what has been an especially lengthy up-cycle in the U.S. that historically should be about ready to come to an end. How much more runway remains?
Among the most recognized leaders, Marriott International CEO Arne Sorenson and Hilton Worldwide CEO Chris Nassetta agreed RevPAR growth may decelerate but will not go negative. If RevPAR growth is a point lower – maybe 5% – it still bodes fairly well and will lend itself to continued solid growth. Again, this all hinges on the macros. “2016 feels like 2015 with maybe a point less of RevPAR growth,” Sorenson said. “It should drive good results.”
While supply growth in the U.S. is also concerning to some of the naysayers, especially if the new supply comes online in what could become a decelerating cycle, the prevailing wisdom suggested it is not nearly close to the unbalanced supply-demand quotients from past troubled markets and should be absorbed without having a serious impact on margins.
With a forecast like this it should come as no surprise that the industry’s giants in the spotlight, as well as many others making names for themselves, had positive news to share at ALIS. Marriott and Accor said they are bullish about their opportunities to close and successfully absorb their deals with Starwood and FRHI, respectively. Commune Hotels & Resorts and Destination Hotels were thrilled about their merger, which they think will allow for great growth across environments and more value for owners. IHG announced its first Kimpton outside the U.S.; Accor said it is excited about its new opportunity to grow its North American platform with Fairmont and Raffles; and many other smaller and mid-sized players were also boasting confidence in their development plans (more on this tomorrow).
Sorenson said what the industry in the short term is starting to call “Marwood” will most importantly deliver lower costs for owners, as well as scale that will create more upside on revenue generation. Smarting from about a 40% dip in its stock price, Nassetta stood with great pride and optimism inside a full-scale mock-up to introduce Hilton’s new mid-market brand, Tru by Hilton (how could the industry gather at a major investment conference without at least one new brand launch). He said Tru could become Hilton’s biggest brand, certainly its biggest near-term growth opportunity, proven by an initial pipeline stated at 102-plus hotels driven by current Hilton owners who helped developed the concept.
Always thoughtful Nassetta and Sorenson also talked a lot about the continued waves of capital expected to come out of China into safe U.S. assets; the need to react even more intelligently to the technology revolution; and perhaps most prophetically about the need to reclaim a more direct relationship with guests, which will cut into the revenue being hijacked by OTAs and shared economy interlopers. Sorenson made it clear that most importantly the industry needs to do a better job communicating with its guests both before and after their stays. “We’re crazy if we don’t,” he said.
HOTELS’ 2106 ALIS notebook will return with more details revealed at individual meetings with brands and independents.