It is no secret that the U.S. lodging industry and its leaders have mixed opinions about 2018. I, for one, am extremely confident about the year ahead in the hotel industry. Although there are undoubtedly some unknowns with respect to how legislation and economic policies will take shape, it seems to me that now more than ever the U.S. lodging industry may have some strong winds at its back in 2018.
Looking back through my career, it has been at least two decades since I have seen this level of sustained industry growth supported by strong fundamentals. I believe the resurgence of confidence and economic growth stems from President Trump’s pro-business policy agenda and the recently passed tax bill. Like it or not, Trump has done his part in growing the economy, reducing burdensome regulation, spurring accelerated job growth and improving the employment picture.
In fact, December’s ISM New Orders Index report came in at an astonishing 69.4. Remember that a number above 50 is expansionary and below 50 is contracting, so 69.4 is huge, especially compared to the tepid 52.1 October 2016 level prior to President Trump’s election in November 2016. This type of growth has provided a much-needed boost in confidence to the corporate sector that will continue to impact the U.S. economy by spurring further corporate activity and spending.
It is also anticipated in 2018 that unemployment numbers will continue to improve. U.S. unemployment currently sits just above 4% (an already solid number) and we will likely see unemployment rates continue to drop, even to levels not seen in nearly two decades.
Also making a huge impact will be the passage of President Trump tax reform bill. Making America’s corporate tax rates competitive again, allowing for the repatriation of potentially trillions of U.S. dollars stashed overseas, and allowing immediate expensing of capital expenditures will undoubtedly get corporate spending moving again. We’ve already seen numerous companies announce increases in wages, bonuses and investment plans. That is likely only the tip of the iceberg. All of this incremental spending should result in more discretionary income for spending and travel, which is great for the overall economy and leads us to be more confident for continued growth within the lodging industry.
I believe this reacceleration of the economy will also have a particularly positive impact on the supply/demand dynamics in the hotel industry. STR is forecasting that 2017 saw an acceleration in hotel demand growth to 2.4% (versus 2016 demand growth of 1.7%) with hotel supply growth at 1.9%. I believe that the hotel prognosticators who think demand growth year-over-year will be flat are missing the boat — demand growth will continue to accelerate allowing more additional growth in both occupancy and rates. In terms of supply growth, I believe 2018 will be around 2%.
While we are approaching nearly nine consecutive years of growth, industry estimates and economic indicators show signs that demand will stay strong and a reacceleration could be in the works for 2018. I love where the hotel industry and the economy are positioned today, so hold onto your hats – this year may end up being much better than you’re expecting.
Contributed by Monty Bennett, CEO of Dallas-based Ashford Inc., a provider of asset management and other services. Ashford serves as the advisor to two REITs, Ashford Hospitality Trust and Ashford Hospitality Prime, who have a combined 133 hotels with more than 29,000 rooms and approximately US$8 billion of gross assets.