Survey Results Show Positive Outlook for Hotels

Survey Results Show Positive Outlook for Hotels

Hotels have been generating near record high performance this year, and exclusive research conducted by NREI and Choice Hotels International shows a continued favorable outlook for the sector.

More than half of survey respondents think that both ADR and RevPAR will improve over the next 12 months at 57 percent and 52 percent respectively, while less than 10 percent anticipate a decline. In addition, 42 percent believe occupancies could increase further and 45 percent think occupancies will remain at current high levels.

The hotel industry is benefitting from a strong economy that has spurred demand from both business and leisure travelers. Survey sentiment aligns with the latest hotel industry forecast that calls for current momentum to carry through 2019. According to STR and Tourism Economics, hotel occupancies will improve a slight 0.2 percent in 2019, while ADR and RevPAR are expected to grow at 2.4 percent and 2.6 percent respectively in 2019.

“Hotels continue to have great occupancy even with the new projects that have been completed. We see continued growth in all of our segments,” says Thiergart, vice president and general manager, extended stay brands, Choice Hotels. In addition to the economic tailwinds, the company’s brands are benefitting from its efforts to reinvest in technology and reimagine brands where needed to provide added support to developers and franchisees, adds Thiergart.

When asked to rate how favorable each hotel sector was on a scale of 1 to 5 with 5 behind the highest, respondents viewed limited service as the most favorable with 68 percent of respondents who rated the sector as a 5 or 4. Extended stay was second with 55 percent who scored the sector as a 5 or 4, followed closely by full-service at 53 percent and transient trailing at 25 percent.

The fact that extended stay was rated as highly favorable by more than half of respondents may indicate that people are beginning to recognize the value proposition that extended stay offers for investors and developers. Choice Hotels made a big move to further strengthen its position in the growing extended stay market last year with its acquisition of the WoodSpring Suites brand and franchise business in a deal valued at approximately $231 million. The acquisition added nearly 240 extended-stay hotels in 35 states to the Choice Hotels portfolio and created an extended-stay portfolio of more than 350 properties with brands that also include its MainStay Suites and Suburban Extended Stay brands.

Extended stay has consistently outperformed the transient business hotel for the past few consecutive years, in part because people are starting to understand the value proposition that extended stay hotels offer, adds Thiergart. Although the typical guest stay is about three weeks, some guests will stay for a few months or even as long as a year. “This is their home-away from home corporate lodging facility,” he says.

Investors continue to exhibit a healthy appetite for hotels. Forty percent of respondents said they are currently active in hotel properties, while 27 percent plan to invest in or expand their hotel investments over the next 12 months. When asked to rate factors that drive decisions to invest in hotel properties, respondents rated demand in a particular market location as the top factor at 61 percent, followed by established brand to leverage at 39 percent and yield/risk-adjusted return at 36 percent.

Return on investment is the end goal for a majority of investors, and extended stay is proving to be a very profitable segment of the market for developers and investors, notes Thiergart. For example, Net Operating Income (NOI) at WoodSpring is over 50 percent, which is unbelievably profitable for investors – in hotels or any other business, he adds.

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