The unemployment rate in the U.S. reached its peak of 10 percent in October of 2009 and continues to decline. In the summer of 2013, the national unemployment rate is hovering around 7.5 percent. Sequestration must remain on the watch list as having an impact on the economy though $100 billion, the amount scheduled for a cut should not have a material impact or drag on growth.
The housing market continues to recover. The S&P/Chase-Schiller index, which measures property values in 20 cities, continues to show solid increases. The data indicate that the housing market continues to recover from the latest economic recession. Household debt is down and household wealth is up. While interest rate increases have slowed the growth, average home prices across the United States were back to their previous peaks in most markets.
Corporate profits are on the rise, interest rates remain low and most indicators are positive for a continued U.S. economic recovery. The consensus forecast is for 3 to 4 percent GDP growth in 2014. The supply and demand balance coupled with this economic news indicates to us that net income and hence values will increase by over 10 percent on average in 2014.
According to Pegasus, following a strong Q2, “leisure travel has exhibited exceptional strength in light of a sluggish global economy. The number of trips taken year-to-date through June has exceeded the prior year by +3.7% globally. These hotel stays were booked at rates higher than prior year by +2.1%, with June rates reaching a new 2013 growth record of +5.1%. Overall, second quarter 2013 results and future bookings reflect growing corporate and consumer confidence.”
Occupancy was up 1.9 percent while average rates were up 3.1 percent in Q2 according to STR. With limited new supply, oil and energy prices stable, the lone negative impact potential remains an unforeseen event. As 70 percent of gross domestic product is consumer spending, consumer confidence is king. While group business still lags from pre-recession highs, leisure business, stimulated by international demand has increased markedly.
According to the 2013 edition of the HVS-STR U.S. Hotel Valuation Index, many hotels have or are expected to reach prior peak occupancy levels. “Annualized room nights sold increased by 3 percent in 2012, and outpaced the 2007 previous peak levels by 60 million rooms (1.09 billion rooms in 2012 versus 1.03 billion in 2007). Room rates for hotels increased by over 4.0 percent, resulting in industry-wide RevPAR growth of roundly 7 percent.” The forecast for 2014 is for at least 5 percent REVPAR growth in 2014. PKF is forecasting 7.2 percent, while STR is forecasting 6.2 percent.
The HVS-STR Index suggests strong hotel values through 2016 and we would agree based on the current economic trends and supply and demand balance.
Lastly, Lodging Econometrics forecast predicts New Hotel Openings of 739 Projects and 82,587 Rooms for 2015, representing a growth rate for new supply of 1.6 percent. This coincides nicely with a strong recovery of three very solid years (2012-2014). In other words, if you can buy at a discount now, “just do it” as Nike has said for years.
It is interesting to look back on Hotel Chatter’s “Master List of Worldwide Hotel Openings” and see the status of each US project: http://www.hotelchatter.com/story/2013/1/4/16945/09998/hotels/The_Master_List_of_Worldwide_Hotel_Openings_in_2013