NYU hotel conference: Global growth is industry's 'biggest opportunity'

NEW YORK – Upbeat. That’s the word that best describes the mood at New York University’s 35th Annual International Hospitality Investment Conference earlier this month.
The hotel industry’s leading movers and shakers – including the CEOs of Hilton, Marriott, Wyndham, Best Western and Loews – praised last year’s performance and prospects for the future. “2012 was a breakout year,” Choice Hotels International CEO Steve Joyce told attendees.

A key factor fueling optimism among the multi-national chain CEOs was the growth of new and existing brands in countries such as Brazil, India, China and Russia.

“Global growth is the (industry’s) biggest opportunity,” Marriott International CEO Arne Sorenson told attendees. He likened the explosive growth to that in the USA 30 years ago.

The global middle class is expected to expand by 3 million people by 2030 – with two-thirds of them in Asia Pacific, said NYU conference founder and Loews Chairman Jonathan Tisch, citing an Ernst & Young analysis.

Europe’s on their radar screen, too, as Europeans increasingly seek chain hotels with modern rooms, bathrooms and other contemporary amenities, both Hilton Worldwide CEO Chris Nassetta and Choice Hotels CEO Steve Joyce said.

When it comes to the U.S. hotel market, some hotel owners expect to be able to keep raising their rates – especially at higher-end properties in key destinations since few new properties are scheduled to open this year or next.

“Supply is the big issue,” says Richard Moreau, chief operating officer of Strategic Hotels, which owns Four Season, Ritz-Carlton and other branded luxury properties. “There’s virtually no new supply coming on. If they started tomorrow it would be 7, 8 years to get something out of the ground.”

Transient business travelers in North America are already on track to pay higher average daily rates, TravelClick executive vice president Tim Hart told attendees, citing his firm’s analysis of forward looking bookings. Rates are rising as hotels push retail rates higher and shrink the discounts they offer leisure travelers, he said.

Despite abundant optimism, however, more than a few panelists said the industry still faces obstacles.

“We have seen that occupancy is back to peak levels for our portfolio. The problem is, rate is not there,” Host Hotels & Resorts executive vice president Minaz Abji said during a panel on optimizing hotel revenue.

Abji referred to the state of group business – the No.1 most-cited weak spot during the conference.

Group meetings and events have yet to return to prior peak levels, he said, blaming continued cuts in corporate meetings, the holding of smaller meetings and government cutbacks in meetings.

“For us, group is the big question mark,” Abji said. “When does it come back? It comes back when corporations are flush with money and they spend more money on training, having meetings.”

Recovery of group business may take a while, according to TravelClick’s recent analysis of future North American bookings. Looking at the next 12 months through April 2014, transient bookings are up by 5.8% year-over-year and average daily rate is up by 3.9%. Group bookings, however, show only a 1.7% increase in occupancy and a 3.1% ADR gain. As Hotel Growth Remains Steady, Group Falls Flat

Other “question marks” raised by panelists during the NYU conference, held at the Marriott Marquis hotel in the heart of Times Square:

Obsolete hotels? Stephen Plavin from the private equity giant Blackstone Group questioned whether some full-service hotels in secondary U.S. markets are obsolete. Blackstone sees many hotels “where investors are willing to invest capital, but there may or may not be a future for the assets,” said Plavin, senior managing director of Blackstone’s Real Estate Debt Strategies group. A hotel up for a renovation, for instance, might find that it would have a difficult time competing against the new select-service hotels being built a few blocks away. “There’ s a whole generation of hotels built in the 1980s or early 1990s needing to be rethought,” Plavin said. “That’s a huge challenge for the industry.”

Too many new brands? Veteran hotelier Laurence Geller, the former CEO of Strategic Hotels, says he’s still surprised to hear about new brands being planned and announced. “Do consumers know what the brands are?” asked Geller.

Millennials: Some hotel owners worry about how brands will try please Millennials, the emerging generation of travelers who tend to crave experiences, outdoor settings, lounges, healthier foods and technology more so than older generations. Jeremy Welter, executive vice president of asset management at Ashford Hospitality, for instance, said he hopes the big brands won’t request expensive capital expenditures to meet their demands.

Uneven recovery: Rates aren’t recovering evenly, said Greg Bingaman, Westmont Hospitality’s director of asset management. Citing San Francisco and cities in Texas, he said “there are several places that are very bright, but there are a lot of markets that are still $30 in rate lower than where they were.” Westmont isn’t being as “aggressive” in driving business through OTAs as it was two years ago, he said; instead, they’re trying to shift the mix of customer to higher-paying segments “as we wait for more compression.”