David Sangree, MAI, CPA, ISHC had the opportunity to attend the NYU International Hospitality Industry Investment Conference on June 6-7 at the New York Marriott Marquis. The following are some key highlights from the conference.
ADR growth: The growth in ADR in 2022 has exceeded everyone’s projections for the industry. The actual ADR is above 2019 levels for the U.S. for the past 10 months although the inflation-adjusted ADR is just getting back to 2019 levels since March 2022. In some markets, such as the Florida Keys or northern New England, ADR growth has been well above the nation. Other urban and commercial-oriented markets have seen much lower ADR growth. STR forecasts ADR to grow to $145 in 2022 and $155 in 2024 for the United States as a whole, up from $125 in 2021.
Demand growth: Room demand has grown to 95% of 2019 levels since last summer. In certain months, it has equaled 2019 levels. The largest demand gap remains during business travel days as weekend demand has been exceeding 2019 levels. Certainly, demand growth has not been equal across the nation. Some top 25 markets, including leisure destinations such as Tampa, Florida, or Nashville, Tennessee, have fully recovered demand while many urban markets are well below 2019 levels. New supply growth is continuing, but rising construction costs and supply chain problems have helped to shrink the pipeline, which is an actual benefit to existing open hotels. STR forecasts an overall national occupancy of 63.4% in 2022 growing to 66.4% in 2024.
Staffing: The challenges of staffing and hiring for hotels and corporate offices was discussed extensively in multiple sessions at the conference. The CEO of Omni Hotels indicated that the hotel brand performs recruiting out of their corporate offices for all of their properties. They currently have approximately 3,000 openings and are hiring around 700 people each week. Other CEOs indicated that most of their hotels were staffed at levels below optimal requirements. To deal with staffing shortages, some presenters indicated that they are exploring ways to push the fun and social aspects of working in hospitality.
Construction delays: Procurement challenges related to new construction were discussed in many panels as properties now require longer lead times and have to pay higher prices for materials in order to build new hotels. Problems such as the lack of pieces for making windows and obtaining fabrics from China were mentioned as examples related to delaying scheduled opening dates or doing renovations for properties.
Hotel values: After a steep decline in hotel values in 2020 and a significant increase in 2021, hotel values are expected to show a moderate increase over the next two years. These gains will be tied to the improving performance levels for hotels and the increased cost of building new construction properties.
Baseline for future financial projections: For the past two years, appraisers, consultants, underwriters, and other financial analysts have been utilizing 2019 as the base year for financial analysis for hotels. Because of the improved performance that is forecasted in 2022, the presenters indicated that 2022 will become the new baseline for future projects starting in 2023. As ADR is expected to surpass pre-pandemic levels next year, these rates will be better to utilize as a baseline for future forecasts. Even if a recession occurs, the travel industry is not expected to be affected as much due to the severe impacts of the pandemic on the travel industry and the level of pent-up demand.