Suzanne Mellen of HVS just authored the consulting firm’s opinion about the 2016 outlook for the hospitality industry. You may link to the article here. For those who don’t want to sign up at HVS’s website, I’ve copied her summary below.
Outlook for 2016
While we are in the midst of a stock market correction that is being particularly harsh to lodging, individual asset values are much more stable than stock values due to differences in liquidity and ownership timelines. Given strong economic fundamentals, and the positive impact of lower energy prices on travel costs and discretionary income, we can expect the lodging industry to perform well in 2016, though at more modest NOI and value gains than in recent years. Cap rates are anticipated to remain low for desirable gateway, high-barrier-to-entry markets. Markets with lower barriers to entry facing new supply are likely to experience a rise in return requirements. One benefit of the changing market environment is that it may reduce the new supply that will be financed and get built during this cycle, lessening the impact on existing hotels. Markets that face downturns in their dominant industries will see the largest rise in cap rates, as buyers factor a NOI reduction into their purchase prices. The positive operating leverage that has fueled hotel value gains is expected to continue over the near term, though the specter of a reversal in hotel operating performance will likely result in higher cap rates and reduced transaction activity.
About Suzanne R. Mellen
Suzanne R. Mellen is the Senior Managing Director of the San Francisco, Los Angeles, and Las Vegas offices of HVS, heading the Consulting & Valuation and Gaming Services divisions. She has been evaluating hotels and associated real estate for 37 years, has authored numerous articles, and is a frequent lecturer and expert witness on the valuation of hotels and related issues. Ms. Mellen has a BS degree in Hotel Administration from Cornell University and holds the following designations: MAI (Appraisal Institute), CRE (Counselor of Real Estate), ISHC (International Society of Hospitality Consultants)
Experts at the ALIS conference say the U.S. hospitality industry is “at the peak, and it’s going to stay at the peak” for some time, according to an article today in Hotel News Now. We agree.
Read the HNN article here.
Hilton’s groundbreaking announcement yesterday of its new brand – TRU by Hilton – created a seismic event in the lodging industry. You can read the TRU announcement press release here. With this new brand, it re-enters the mid-scale segment of the industry with a product that is targeted squarely at Millennials. Coincidentally (or not), in 2016 Millennials will become the largest guest demand group in the U.S. hospitality industry, surpassing the venerable Baby Boomers for the first time.
Hotel development utilizing the traditional hotel size and shape has become difficult as available sites tend to be too small or oddly shaped. The compact size of the new brand solves this issue in many cases. New opportunities created by this brand will help fuel Hilton’s growth, and the growth of numerous Hilton developers such as Springwood Hospitality.
Hilton’s research shows mid-scale guests are dissatisfied with the consistency of the quality experience they see at mid-scale hotel chains. Sometimes it’s great; sometimes it’s awful. The guest feels as if she’s playing “reservation roulette.” Hilton will bring its quality and brand consistency to bear to build a dominant brand in this market segment it has not served for more than a decade.
Its Hampton brand abandoned the mid-scale segment years ago as it gradually moved upmarket with improvement after improvement. Hampton Inn & Suites by Hilton is now considered an “upper-mid-scale” brand. Just as many car manufacturers have recently done (BMW 1-Series, anyone?), Hilton is rejoining the segment with a trimmed-down version of its biggest winner.
And just as car companies are doing, the smaller model will pack many of the best luxury features of its larger cousin. From the 60″ TV’s to the roomy shower stalls, guest rooms in the new brand are poised to delight. From the second a guest steps into the fresh lobby with its game area and upscale retail feel, he’ll know he’s stepped into something totally fresh; completely different.
Springwood is excited to have two new TRU by Hilton hotels in our development pipeline. Stay tuned for more announcements from us about where these hotels will open.
I’m celebrating today because a newspaper reporter got a story mostly right (see link below).
Springwood Founder’s History
OK, my house is still on the line every day and the article makes it sound as if it’s not.
And it doesn’t mention the more than one hundred investors who have risked their hard-earned cash to help us succeed. We’re proud that they’re happy and they’re telling their friends to invest with us, as well.
FYI my temperature was nearly 103 by the time I arrived home from that first interview with Justin. I suppose I was still coherent; I don’t know.
2016 will be – by far – the best year in Springwood’s history. I am grateful to everyone who has helped our team get to where we are. Our team loves serving our customers, and we are committed to doing it better than anyone else.
Only the first chapter has been written…