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At CBRE Research’s annual conference last month, I joined Mark Carrier from BF Saul Hospitality group¹ and Kate Henriksen from RLJ Lodging Trust² to discuss some of the issues currently facing the hotel industry and its investors.

• The sustainability of the cyclical peak that is now benefiting hotels 
• The hotel supply cycle reaching a new peak
• Slow room rate growth rates in the presence of record occupancy
• Labor shortages and cost control
• Sharing economy penetration
• A changing mix of international, leisure and business guests

The panel first agreed that foreseeing the end of the cycle or effectively accounting for it is impossible. The past two cycles likely offer little insight, as they both ended with an unexpected shock. Economic shocks are of course detrimental to hotels’ financial performance, but the industry is unique in that similar harm is caused by shocks affecting air travel. And interestingly, weather shocks have positive effects on hotel occupancy and rates, along with their negative effects.

The supply cycle has caused much concern. The number of rooms under construction seems to have peaked, and supply has been concentrated in certain locations and market segments.

Figure 1: Pipeline peaking – U.S. Rooms Under Construction

Source: STR, CBRE Hotels’ Americas Research, Q2 2017.

Figure 2: Recent New Supply

Source: STR, CBRE Hotels’ Americas Research, Q2 2017.

The panelists agreed that no single factor is responsible for sluggish room rate growth, and Mark Currier noted that the aggregate growth rates mask some rather strong ADR growth at the property level.

Participants also held common views on labor issues and competition from the sharing economy: they are still emerging issues that remain somewhat beyond the control of owners and managers. And neither issue has affected hotel performance meaningfully to date.

A question from the audience about the choice between affiliating with a hotel brand or remaining independent stimulated considerable discussion, with Kate Henriksen noting that her company’s decision is part of a long-standing strategy. I mentioned that while they recognize the operational flexibility associated with independence, investors in public hotel ownership companies are more comfortable with chain-affiliated properties.

Finally, the panel addressed changes in the guest mix, agreeing that leisure travel dominated business travel during the latest recovery and remains a very important contributor to weekend occupancy—as is international travel in certain large city markets—trends that are reflected in the data.

I had opened the session with an overview of recent U.S. hotel cash flow and value performance and a summary of the latest CBRE hotel market forecasts. For the full slide deck, click here.