Hotel demand is somewhat of a dichotomy, if you listen to the experts at ALIS. Overall demand is strong. Last year, demand boosts from the natural disasters and a limited new construction supply has kept occupancy rates strong; however, there is shrinking international tourism. In fact, the United States and Turkey were the only two countries last year to experience a decline in tourism. Experts at ALIS had some thoughts on demand and supply in the coming year.

One thing that drove demand—for better or worse—was the extreme natural disasters that we saw last year. “The natural disasters really had a profound effect,” said Carter Wilson, VP of Consulting & Analytics at STR. “If you look at the national revPAR numbers in October, November and December of last year and you extract the Florida and Texas, those two states alone caused about a 150 basis points lift in the revPAR growth.”

The demand impact may not just be a short term phenomenon. Rebuilding efforts may mean that there will be a longer term boost in demand in Texas and Florida. “It is going to cause a long-term effect as well when you think about the construction crews and all of the rebuilding that is going to have to happen,” said Wilson at the conference. “That is going to have a lingering effect.”

Despite the increase in demand from natural disasters and the strong occupancy rates last year, international demand in declining, and it is cause for concern. Some are pointing to rhetoric from the new administration as a cause of the drop, while others see the strong dollar as a deterrent. “It is very clear that the trend line has been negative for inbound travel. I will point out that that began to decline in late 2018, so well before the president took office. That trend had been well established,” Mark Woodworth, senior managing director of CBRE Hotels, explained. “What was going on during that time is that the dollar continued to shrink. We have had a little bit of a pull back, but still on a relative basis, the dollar remains very expensive. It is just like any thing else. The more expensive, the less you are going to get of people buying the product. We think that is an important reason to remember when we are talking about how to make the US a more appealing place to visit.”

The limited new construction supply is helping keep occupancy rates high. The supply pipeline is shrinking, and seems to have hit a peak. “On a relative basis, we are well below previous peaks in terms of supply,” explained Woodworth. “If we look at the STR numbers for over a year now, the actual volume of rooms that is under construction is appearing to go down. It was roughly at 200,000 units a year ago and now it is at 180,000, in whole numbers. It seems to have peaked.”

However, the new tax plan may spur more new development activity, or at least make it more economically attractive. “There appears to be elements of the new tax law that will have an impact on the demand side of the industry,” said Woodworth. “Clearly that is a good thing. As far as the depreciation, there is an indication that may make the economic viability of new development easier to justify. Not nearly what we saw in the 1980s, but it is something that could result in more rooms being added to the inventory than would have otherwise been the case.”