Watching a Potential Hotel Slowdown
Times are good in the hotel business, but for an industry that often pegs its future success on America’s GDP, anecdotal evidence suggests these roaring times in the hospitality business could be slowing down.
I say this having just returned from a tour of the beautiful new Embassy Suites in downtown Minneapolis, which was a conversion of a 100-plus-year-old office building under the guidelines of the National Register of Historic Places. The Plymouth Building, as it’s still known, has been restored beyond its former glory with a rehabbed facade, refinished wood plank floors, 8-foot-tall doorways and gleaming white marble floors.
This is one of countless economy-boosting projects fueled by this heady hospitality era. Looking at the U.S. GDP, which is a leading indicator of hotel industry RevPAR (revenue per available room), quarter-to-quarter growth in real GDP has slowed significantly from the second quarter of 2015 through the end of Q2 ‘16.
Earlier today I spoke with Tom Leonhard, president and CEO of HRI Properties out of New Orleans, which has completed more than 30 adaptive reuse hotel projects in recent years. He said this newly sluggish GDP growth is a cautionary sign that room rates and general occupancy could become similarly sluggish in the coming months.
Leonhard added a crucial caveat, however, adding that certain cities are immune to such general trends, with employment growth outpacing the national average. According to Forbes, the 10 fastest growing American metros are Austin, San Francisco, Dallas, Seattle, Salt Lake City, Ogden (Utah), Orlando, San Jose, Raleigh and Cape Coral (Florida). Other standouts from its list include Denver, San Diego and Charlotte.
As more data continues to trickle in, I’ll be keeping my eyes on the hotel category and how it’s faring in light of slowing economic growth. However, recent news about rising middle class incomes should continue fueling leisure travel that is a major component of most urban hotels. There’s nothing to suggest companies will soon be slashing headcounts, but more moderate economic growth may lead to fewer big-name hotel projects in certain cities in the coming year.