Strong Hospitality Marketplace Prompts Its Own Set of Challenges for Operators
By Richard Takach, Jr. President & CEO, Vesta Hospitality | January 11, 2015
A continued positive economy, with the 2008-2009 recession firmly in the rear view mirror; excellent levels of business travel; and consumer confidence have all contributed to a sustained strong hospitality marketplace. At the same time, a number of factors, including the ability to acquire existing hotels for below replacement cost, the preference of private and public entities to purchase existing properties with in-place cash flow and the difficulty to finance new hotel construction have, so far, constrained overall growth in supply. With that said, it is important to note that strong recent sales prices have helped encourage some additional supply, especially in strong markets. This is a trend that bears watching.
As a result of the improving economy and still relatively constrained supply, we are experiencing consecutive period increases in RevPAR. Occupancies are strong and, increasingly, rates are also being driven higher.
A November 2014 "Hospitality Directions US: Our Updated Lodging Outlook " paper by PricewaterhouseCoopers (PwC) reported RevPAR growth of 8.2 percent for 2014, with accelerating group demand contributing to stronger occupancy gains. This RevPAR gain was strong across all property categories. Also, PwC projects that in 2015 hotels will reach their highest occupancy levels since 1984, with RevPAR increasing 7.4 percent, more than 80 percent of which will be derived from increases in room rates.
However, as Bill Marriott, Sr. liked to note, "success is never final." Sustaining and improving upon success has its own set of challenges. In particular, it is only natural that when guests pay premium rates for a room, their expectations soar correspondingly. This is especially so for leisure travelers, whose accommodations aren't being funded by a company or, otherwise, accounted for as a business expense. Being busy and meeting the needs and expectations of demanding consumers also impacts our executive teams and staffing at properties; perhaps, raising their own expectations for compensation and organizational support.
Surely however, it's a "problem" we like to have.
In this article, we will consider some of the issues our hospitality industry faces, even as we are doing so well. Subsequently, we will review some key areas or topics that impact our efforts to extend these good times.