CHICAGO—The recovery of the hospitality industry has some operators and investors wondering when it will hit its peak and if the new supply coming online will saturate the market. At Friday’s THINConference, the hotel investment networking conference, held at the Chicago Hilton, several experts tried to reach a consensus on this and other topics at an afternoon session.
“Supply is becoming an issue,” said John Jameson, president, Jameson and Co., andsome markets around the US are seeing aggressive expansion. “I know of a 700-room hotel going into Spokane. I didn’t say Portland and I didn’t say Seattle, I said Spokane.”
However, even though a good deal of building is going on, Jameson is not convinced the hospitality industry has hit the saturation point. “It depends on your market.” He pointed out that Indianapolis has a lot of new supply, and “Indianapolis is doing just fine.” Furthermore, during the run-up to the recession, developers were far more active. “I don’t think we’re at the point of the ‘build it and they will come’ philosophy of a couple of years ago.”
“We’re not quite in the red zone yet,” agreed Greg LaBerge, national director, Marcus & Millichap Real Estate Investment Services. Historically, over the last 20 years, the growth of supply has been at an annual rate of 1.7%, and currently, the national rate stands at about 1.1% to 1.2%. “So on a national basis, there is still room to grow.”
“Every market is different,” he added. Some cities, such as New York, Miami and Nashville have started growing at a 10% to 15% rate, while other markets have negative growth. And that does not worry LaBerge.
“There are a lot of hotels that need to be flushed out of the system,” he said. And developers have started transforming many of these obsolete hotels into seniors housing and assisted living centers. “The footprints and size of the rooms makes it a perfect fit,” and this positive trend also serves to take pressure off the supply issue.
And if the economy continues the gradual improvement seen over the last few years, the danger of oversupply could be a ways off. “Several years from now, we could be at 4.7% unemployment. I’m looking at it optimistically. There’s nothing like the subprime mortgage crisis to drag us down.”