New Orleans hotel market poised for one of the strongest growth rates

Posted on: July 15 2010
By all accounts during Tuesday’s ALIS Summer Update, things are looking up for the United States’ hotel industry...

By Jeff Higley

Editorial Director

LOS ANGELES—By all accounts during Tuesday’s ALIS Summer Update, things are looking up for the United States’ hotel industry.

* Read “Blog: An industry watching its backside.”

During the data-driven opening session, the news coming out of the industry was good:

• “We’re seeing what I would describe as a moderate pace of recovery, but at least it’s a recovery,” said Arthur de Haast, global CEO of Jones Lang LaSalle Hotels.

• “(The recovery) is better, quicker (than what had previously been thought),” said Mark Woodworth, executive VP with PKF Consulting. “It is all demand-driven.”

• Mark Lomanno, president of STR who, with Woodworth, was part of a dance routine during the ALIS conference in January, followed that performance up with his best “Saturday Night Fever” move and announced: “Things are looking up!” Then he added: “If you look at the demand line right now, you see a very rapid demand recovery. Going forward you can probably expect that’s going to continue.”

Here’s a rundown of the various presentations:

De Haast: ‘Definitely an improvement’

“The first two quarters of 2010 are not exciting but definitely an improvement over 2009,” de Haast said.

JLLH is forecasting US$8 billion in global hotel transactions during the second half of 2010. “We will end up about 40-percent positive compared to the steep declines of the last two years,” he said.

De Haast said transaction volumes are up more than double in the Americas, and the Asia/Pacific and Europe, Middle East and Africa regions are the same as last year—US$1.3 billion for Asia/Pacific and US$2 billion for EMEA. Activity in the Americas is at US$2.2 billion for the first half of 2010—up from US$1 billion during the first half of 2009.

JLLH’s transaction forecast for full-year 2010:

* US$1.5 billion for EMEA;

* US$3.2 billion for Asia-Pacific; and

* US$4.5 billion for the Americas.

Real-estate investment trusts by far have been biggest buyers during 2010, followed by institutional investors. The biggest sellers: developer/property companies and hotel/SA operators.

De Haast said there remains a big gap between the buyers and sellers when it comes to pricing hotel assets. “There’s an appetite for acquisitions as long as it’s the right product in the right location,” he said. “Overall, we’re in a much better place than we were in January.”

He added there are “a couple of fairly big deals out there, which, if they go through, we could be surprised on the upside.”

Woodworth: Little development

Woodworth said expense cuts that hotels managed during the past 24 months will eventually disappear. He said total operating expenses dropped 11.8 percent in 2009. He asked attendees if expense cuts are biodegradable, explaing that biodegradable in this case means “capable of being broken down rapidly by the action of management.”

“They are in fact biodegradable,” he said. “They will disappear.

“We see significant profit growth consistently through 2014, but we do very much expect to see meaningful expense growth in the years ahead,” he added.

Woodworth said PKF’s latest forecast calls for 2010 occupancy to finish at 58.3 percent, while revenue per available room will grow 7.8 percent.

Markets poised for the strongest growth rate include Newark (New Jersey), San Francisco, Chicago, New Orleans and Los Angeles, according to Woodworth.

Eight consecutive quarters of demand contraction ended in the first quarter of 2010, but the supply/demand imbalance, capital market turmoil and depressed market values will keep development at a standstill, he said.

“At best case (there will be) no meaningful development until 2013, 2014,” Woodworth said.

Lomanno: ADR still lags

Thus far in 2010, demand has risen 6.5 percent, occupancy is up 3.9 percent and RevPAR has increased 1.1 percent, according to STR data. However, ADR is down 2.7 percent, and hotel supply is up 2.6 percent.

See Mark Lomanno’s presentation here (free registration/sign-in required).

“There has been a very rapid demand recovery,” Lomanno said. “Six months ago we were talking about a ‘U’ shaped recovery as opposed to ‘V’. We have actually been in a recovery for 12 months, but it has really accelerated in the last three to four months and will probably continue. The customer has come back and come back very quickly in most places.”

While final numbers haven’t been crunched, Lomanno predicted that June will be the first month in 2010 that STR will report that ADR will be up over 2009.

“There are a few pockets (of increased ADRs),” he said. “The real challenge going forward is what’s going to happen and how quickly that will happen.”

The demand for hotel guestrooms has seen tremendous recovery at the upper end of the chain-scale segments, according to Lomanno. He said much of that recovery is being led by the New York market.

“This is going to be a bit of a top-down recovery,” he said. “Room rate growth trajectory will determine the magnitude of the recovery.”

One red flag for the industry is that pricing for group demand is well below 2008 and 2009 levels, Lomanno said.