Hospitality Experts’ Biggest Concerns: Trump’s Unpredictability, Rising Costs, Lack Of Inventory
For the most part, the hospitality industry is doing well.
More people are traveling for business and leisure. Occupancy, average daily room rate and revenue per available room were up in 2017 from the previous year.
But there are lingering concerns among those in the industry about what lies ahead.
U.S. inflation is low and so is unemployment. The U.S. economy and incomes are slowly rising and consumer confidence is at its highest level in 17 years, AXIS/GFA Architecture + Design founding principal Cory Creath said at the recent Bisnow Lodging & Innovation Series West held at the Sheraton Grand Hotel in downtown Los Angeles.
Since the 2009 recession, the U.S. is in one of the longest economic recoveries since the 1960s. But some are saying that bubble could burst soon.
“We’re in a long cycle,” HVS Managing Director Adam Lair said. “Certainly things continue to be strong, but I think there’s a feeling that eventually the cycle has to end.”
President Donald Trump‘s threat of starting a trade war with China does not help. The Chinese government already has tightened how much Chinese firms can invest outside of the country, resulting in a 55% decline in U.S. commercial real estate investments from $16.2B in 2016 to $7.3B in 2017, according to a Cushman & Wakefield report.
Interstate Hotels Head of Asia Investment Group Don Li said Trump is a “wild card” when it comes to the economy and the health of the hospitality industry.
“The potential trade war between the countries is really concerning,” said Li, who has clients from China. “Hopefully, that will be avoided but if not there will definitely be collateral damages on both sides.”
“The temper tantrums that are coming out [from Trump] — that is unpredictable,” Li said.
A potential trade war against China could lead to an increase in U.S. construction costs, which are already going up, and may prevent more foreign investors from buying hotels and other commercial investments in the U.S., Li said.
While a proposed steel and aluminum tariff has not been instituted yet, companies are already hiking up prices in anticipation of the move.
Construction costs across the nation have increased by 4.3% from the previous year, with Los Angeles seeing the highest rise with a 7.59% increase, according to construction consultancy firm Rider Levett Bucknall.
After strong years in 2016 and 2017, construction of new hotels is expected to decline by 2% this year, according to Oldcastle’s North American Construction Forecast report.
Grossman said he believes Sonder and Lyric are the biggest potential threats to hoteliers.
“[Sonder and Lyric] really do have the opportunity to standardize the experience,” Grossman said. “You get the services, the consistency of experience, the great location and most importantly, especially with Sonder, they are doing it legally.”
Sonder describes itself as a “hometel,” a short- or long-term apartment rental with the professional services of a hotel. Sonder provides 24-hour support, cleaning services and manages the full rental experience.
“You have hotel companies seeing what’s happening and trying to get a piece of the pie,” he said.
Many of the major hotel brands are investing in the competition. Last year, Hyatt made an investment with Oasis. This month, Marriott International started a pilot program with Hostmaker, a London-based hospitality management company.
Grossman said there is frenzy right now over how these types of platforms are going to fit into the hospitality space in the coming years.
“I’m really interested in how the public will take to it,” he said. “I’m excited, nervous, threatened, uneasy about where it’s going but I’ll be watching closely.”