M&M: Job Growth Fuels Bright Outlook for Hotels in 2017

Source: Marcus & Millichap

Hoteliers are poised to see higher revenues in 2017, thanks in large part to the shrinking national unemployment rate, according to a new report from Marcus & Millichap titled “U.S. Hospitality Investment Forecast.”

The unemployment rate, which the Bureau of Labor Statistics (BLS) reports fell 20 basis points to 4.5 percent in March, is powering hospitality forecasts in several ways.

Most fundamentally, as the economy expands and more jobs are created, wages begin to increase, leaving consumers with more disposable income for leisure and travel.

Economic expansion also breeds more interstate commerce between businesses, driving up levels of work-related travel. In March 2017, the country added 56,000 jobs in the professional and business services sector, according to the BLS.

Furthermore, since 2011, the U.S. has added between two and three million jobs per year. This growth has enabled workers to hold jobs for longer periods of time, giving them more accrued vacation days.

Finally, as the workforce grows, younger employees gradually phase out older ones, leading to a growing segment of retirement-age consumers.

These job-growth trends all point to increased consumer traveling and spending in 2017. As such, the hospitality sector is projecting a 1.4 percent growth in room demand for the year.

Hotels are also forecasting a 2.4 percent gain in another key metric, revenue per available room.

The modest increase in room demand is expected to coincide with the peak of the hospitality construction cycle as developers bring roughly 140,000 hotel rooms on line in 2017, equating to 1.9 percent growth in supply.

While this wave of new supply is expected to cause the overall hotel occupancy rate to cool to 65.2 percent — a 30-basis-point decline from the year prior — it will also likely choke off lending for new hospitality projects, keeping the market from overheating, according to Marcus & Millichap.

So, while there will be more rooms available in 2017, the heightened revenue per room will offset the drop in overall occupancy, according to the report.

Still, the road to actualizing this positive forecast is not without obstacles.

For starters, many hotel employees, particularly unionized workers, are among the beneficiaries of wage growth. In addition, new immigration policies could present staffing issues for hotels, further heightening the bargaining power of existing employees in the wage war.

In addition, anticipated changes to the tax code, such as the proposed reductions in capital gains and corporate tax rates, are causing lenders to slow down and reassess their hotel investment strategies, according to the report.

Taylor Williams



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