As America’s Lodging Investment Summit (ALIS) quickly approaches, we caught up with Bruce Ford, Senior VP of Lodging Econometrics (LE) and a long-time member of the ALIS committee, who shared his expert hospitality trends from 2017 and what changes we can expect in 2018.
About Bruce Ford
Bruce is a recognized expert in lodging market intelligence and development trends, with in-depth knowledge of global markets and brands. LE is the leading lodging industry consulting partner for global real estate intelligence. At LE, Bruce identifies new construction and product placement opportunities for vendors looking to increase their product distribution in the lodging industry and improve their market share. He also advises on new construction and potential brand conversion opportunities for franchise companies looking to accelerate their brand growth.
Bruce is a featured speaker on global real estate trends at several industry conferences worldwide. In the past year alone, he has appeared as an industry expert on six different development and real estate panels. In addition, he has served on the Allied Member Executive Committee within the American Hotel & Lodging Association (AH&LA) and, as a member of the ALIS committee, helps select the “Development Project of the Year Award.”
Q&A About Hospitality Trends
He graciously took the time to share his expertise on growth, high occupancy rates, and trends in the hospitality industry with us.
1. Tell me about Lodging Econometrics and your role there.
LE is a 20+ year old hospitality real estate company that tracks new hotels being built around the world, as well as projects that occur at existing hotels, whether they’re renovations, conversions, or hotel transactions. We maintain a database of every open and operating hotel across the globe. The primary method of delivery is through hosting an online database solution through lodgingeconometrics.com.
That offers the opportunity for people participating in owning, managing, franchising, and selling products to the hospitality industry to access information that’s updated and refreshed every seven days. We’ve been hosting online for about five years. We work with clients that franchise hotels, consult on hotels, do feasibilities about hotels, sell products to hotels, or own and operate and/or manage hotels in all regions of the world. I’m the leader of the global sales team so I spend time on the road in international marketplaces working with large global companies.
2. What’s your affiliation with ALIS?
At the ALIS Conference, we are the chair people for the “Development Project of the Year Award.” Each year we help identify the best projects that open newly constructed hotels throughout the United States. We hand out two awards at the ALIS Conference, one for the best full-service new construction and one for the new select service project that opened in 2017. We manage that process for the “Development Project of the Year Award.” We’ve attended the conference all the way back to when it was the UCLA Hotel Investment Conference.
3. How do you help clients with their growth goals?
Many of my clients are looking for business development opportunities. Whether it’s a franchise company looking for developers to build their brand of hotels, or a product supplier looking for new owners to sell their products to. Or maybe it’s a designer looking for owners seeking design services. People who want to grow their business and grow their profile on hospitality call Lodging Econometrics to find those opportunities.
4. Which hospitality segment do you predict will have the most growth?
In terms of growth, you can really track that in two ways—the first being profitability growth in terms of RevPAR (revenue per available room) growth. This would be the measure that people look at chain scales of the upper midscale. The upscale chain scales have been leading in terms of RevPar growth, mostly because they continue to open new hotels. In those two chain scales, many people think the higher end market ADR is reaching its peak. I would say from a percentage-based growth on the RevPar outlook, upscale will have the highest rate of growth this year.
From a global pipeline perspective, in terms of number of rooms that are scheduled to open this year, the upscale chain scales will have the most rooms open in 2018. In the upscale chain scale scheduled openings for 2018, there are 755 new hotels and 125,595 guest rooms. That will be the biggest growth from a rooms perspective this year. That’s adding 125,000 guest rooms on an existing supply of 3.3 million guest rooms worldwide.
5. What are the secrets to keeping occupancy rates high?
In the hotel business right now, we’re actually running at historically high rates of occupancy. A little bit different from some other industries, the hotel industry is actually profitable. The average hotel is profitable with 55% occupancy, and today nationally we’re at about 65%. We’re experiencing some historical highs for any given calendar year. We may even be as high as 68% right now.
Establishing the right kind of rate management is a top priority for a hotel owner. The goal isn’t necessarily to sell out every night. The goal is to be able to continue to raise the rates as your percentage of occupancy increases. Say you have a hotel with 100 rooms and you sell 70 of them at an average daily rate of $100. Every room you sell past 70 you want to charge a 30% premium over what you charged for the first 70. So you’re able to get a premium rate for those last 30 keys.
6. What major hospitality trends can we expect in 2018?
2017 was probably better than most people expected. Going into 2017, the theory was we were going to have 2 to 3% RevPar growth. This year we’re most likely going to beat that. Some of that is the result of some unfortunate natural disasters like the hurricanes that drove some unexpected occupants and revenue.
On a more positive note, the economy is doing a bit better than most people expected at the beginning of the year, so that has continued to improve demand in and around the hotel industry. The trend still seems to be positive.
In regard to operating performance growth for 2018, expect another up RevPAR year. We’ll continue to see more mergers and acquisitions this year in the hotel business. There were some pretty notable transactions in 2017. For example, the Red Lion and Vantage acquisition was a big transaction. Wyndham also purchased American, and I think we’ll continue to see those big types of buyouts occur.
Marriott’s stock got up to 57% last year. That can definitely power some investments because there is so much market cap to work with. To that point, Marriott purchasing Starwood has driven incredible growth in that stock. That’s likely to ebb off a little bit as a 57% growth cannot be matched. The stock market will likely begin to trickle back a little bit, but I don’t think that will stop merger and acquisition investments. Those will continue as new construction progresses and will grow again in 2018.
In 2017 in the United States we opened about 107,000 rooms and this year we’re scheduled up to 130,000. That indicates supply growth is coming for sure with an increase year over year that should be of note, but still not overwhelming to property owners and management companies.