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Hotel Industry Growth Continues, Labor Shortage a Concern, Says Industry Researcher

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The U.S. hospitality industry expects to see sustained construction growth in 2019, particularly in coastal markets like Miami. Earlier this year, Netherlands-based citizenM acquired 27 acres in this market for the development of a 348-room hotel.

ATLANTA — The hotel industry is still setting records.

According to Jan Freitag, senior vice president of Tennessee-based STR, United States hotels in 2018 had the highest availability, most sales and the highest average daily rate (ADR) ever recorded.

The total inventory of rooms available was up 2.1 percent in February year-over-year, the first time in history that the annual pace of supply growth has exceeded 2 percent, Freitag said.

Freitag presented the research during the 31st annual Hunter Hotel Investment Conference, which was held from March 20 to 22 at the Atlanta Marriott Marquis in the city’s downtown area. The conference drew approximately 1,850 attendees.

STR found that in 107 out of the past 108 months, the industry has posted an increase in revenue per available room (RevPAR). The lone exception was September 2018, a month Freitag called an anomaly.

Although hotel revenue continues to grow, there is a large chunk of travelers around the world that the U.S. is missing out on due partially to the exchange rates that don’t favor travelers from developing countries, says Freitag.

More people are traveling than ever before, backed by greater leisure spending among the emerging middle classes of India and China. But the prevailing sentiment is that the American hospitality industry is not fully capitalizing on this opportunity.

According to U.S. Travel Association, in 2015, only 11 percent of international travelers included the U.S. on their itineraries. The organization projects that number to fall to 4 percent in 2019 and down to 3 percent in 2020. What’s more, January 2019 saw the lowest month-to-month ADR growth since May 2010, notching a 0.8 percent change.

“This is easy money that U.S. hotels are losing,” says Freitag. “We need to get these travelers in here and take the money, because they want to spend it.”

A Million Job Openings

Freitag warned conference attendees of other concerns that could derail industry earnings in the near future, namely the labor shortage. The Bureau of Labor Statistics (BLS) reports that there are more than 1 million open positions in the accommodations and food service industry. Labor shortages force hotel owners to drive up wages. As an indicator of a tight market, he noted that hospitality wages for nonsupervisory employees have risen 4.9 percent year-over-year.

Freitag rightly conceded that many of these job openings were not exclusive to the hospitality business, but that the hotel, restaurant and retail sectors tend to compete for labor among certain demographics.

“There are restaurants in hotels,” he said. “We are competing for the same person.”

Accounting for Mother Nature

According to the National Oceanic and Atmospheric Administration (NOAA), 2016, 2017 and 2018 were three of the four most active years ever recorded in the U.S. for natural disasters that generated billions of dollars of damages. There were 14 such events in 2018.

Freitag points to these growing numbers as a call to action for hotel owners and operators to add weather resiliency to their valuation models.

“How do you, the owners and operators, function off the grid for multiple days?” Freitag asked. “How do you have access to staff? Can you retrofit your hotels to be more resilient?”

Furthermore, 31.3 percent of U.S. hotels are in low-lying coastal areas, meaning roughly one-third of the total volume of hotel properties could be affected by a six-foot storm surge resulting from a hurricane or tropical storm.

“When people are displaced, they look to hotels to provide food, shelter, communication and electricity,” says Freitag. “We’re not first responders, but we’re kind of first responders. If somebody’s house gets wiped out, they look to us for assistance.”

— Alex Tostado

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