We have enjoyed 10 consecutive years of occupancy expansion, but now we are about to enter a period of a slight slowdown. Demand growth for 2019 is estimated to be 2.0% and for 2020 between 1.1% (CBRE) and 1.7% (Smith Travel). This is a direct result of the National Economy slowing down. Demand growth closely follows the National Economy. Changes in lodging demand growth typically lags the National Economy by one year. The National Economy is expected to grow by 2.2% in 2019, .7% in 2020 and 1.4% in 2021. Supply growth is anticipated to continue at the long term average of approximately 1.8% per year. Occupancy levels will remain relatively flat to a slight decline. The good news is the anticipated downturn will be slight and short lived. The recovery should begin in 2022 with a 1.3% increase in RevPar, followed by a whopping increase of 3.8% in 2023. The rising cost of new construction will limit the growth of new supply.
Smith Travel – 2019
Smith Travel – 2020
CBRE – 2019
CBRE – 2020
Hoteliers will need to concentrate on revenue management, property maintenance, labor costs, insurance and other expenses to continue to earn strong returns and preserve value while riding out the slowdown. The limited demand growth cannot keep pace with the modest supply increase. With the slowdown in the economy rising interest rates aren’t the worry the way they were at the start of the year. The Fed is likely to dial back rates to help boost the economy. The Federal Reserve has policy meetings on July 31st and September 18th. It is anticipated that at one of these meetings the Fed will lower interest rates by a quarter of a point, with two rate cuts likely in 2020. Financing remains abundant for acquisitions. Even rehab money and new construction money are available although there is stricter underwriting requirements, a lower loan to value, and slightly higher interest rates for these types of loans. Values will remain stable as cap rates have stabilized as a result of interest rates stabilizing. The market has been good for so long that it is much harder to find deals that make sense. We still have more Buyers than Sellers as it remains a Seller’s market.