CHICAGO—The slowly rising economy has begun to buoy the hospitality sector and the nation’s hotels will see higher occupancy and room revenue the rest of this year, according to a recent Hospitality Research Quarterly Update from Marcus & Millichap. The burgeoning energy sectors in states like Oklahoma, Colorado and Texas will provide a notable lift to hotels, while the strengthening auto sector will do the same across the Midwest. Although future cuts in government spending remain a concern, its effect on spending and travel by government employees and contractors remains uncertain, the firm’s researchers found. In fact, recent earnings calls by major hotel companies showed that whatever the slowdown in government travel spending, it was off-set by increased business from other customers.
“Fresh indicators of a strengthening economy have emerged in 2013, lifting prospects for additional gains in room demand and room revenue in the months ahead,” the quarterly update says. “The planning pipeline has grown over the past year, and the number of rooms under construction rose more than 18% during that time.” Actual deliveries, however, will only expand the nation’s room stock by 1.5%. Therefore, Marcus & Millichap foresees that a “record room demand and a nominal increase in completions will support a 60 basis point rise in nationwide occupancy to 62% in 2013.” Furthermore, “room revenue will rise 6.9%.”
More money seems to be flowing into the hands of consumers, and they will spend some of that in hotels. “Despite an increase in payroll taxes, personal income rose 2.8% during the 12-month span ending in April.” That helped boost spending on services by 3.2%, “indicating that consumers are spending freely and head into the peak summer travel season with a positive outlook.”
The auto industry has been on the rebound for several years, pushing up job numbers and growth across the Midwest, especially in Michigan and Ohio. And these positive economic effects have rippled out into other sectors including hotels. Although the strong performance by hotels in auto manufacturing states can’t be wholly attributed that industry’s recovery, Marcus & Millichap does says that “the performance in Michigan and Ohio during a dormant period of leisure travel is notable. Occupancy in Michigan rose 130 basis points during the first four months of the year to 50.5% on a 3.8% increase in room nights.” Ohio also exceeded U.S. trends.
All of these developments mean that hotels should have a great summer. “Occupancy for the season will rise 70 basis points to 70.1%, nearly equaling the high of 70.3% in 2007,” the update says.