Hotel Business in the USA
January 23rd, 2014 by Alisa Sava
As one of the top international real estate markets, the US provides favorable conditions for those who are eager to invest in hotel property. Hotel development will continue to flourish as there is a huge demand in this sector from the growing tourism industry and business travel.
“Travel and tourism to the United States continues to break new records, boosting our exports and helping strengthen our economy. The Obama administration has made promotion of travel and tourism a key priority of the economic growth agenda,” notes the US Secretary of Commerce Penny Pritzker.
According to PKF’s analysis, the demand and occupancy are forecast to perform above average in the next few years, while the growth of supply will be below average. Currently, there are 320 hotels projects in the pipeline comparing with 293 in 2013.
Overall occupancy rates will hit 63.8% in 2014. Moreover, a strong revenue growth is predicted for Houston, Newark, Oakland, Chicago and a long list of cities:
Meanwhile, there is a growing popularity of extended-stay and limited-service hotels. Hotel developers are attracted to extended-stay hotels because of the simplicity of their operations and high profit opportunities. Low levels of staffing with limited offerings of services and amenities allow them to reach high revenues.
Below we suggest the most important hotel trends for 2014.
Millennials Will Be the Number One Customer
Millennials (often known as Generation Y) represent the population segment born between 1980 and 2000. They are now entering the peak of their earning, spending and travel years. Millennials will become the core customer for the majority of airlines, hotels and travel companies. This group is looking for new unique experiences for a reasonable price and this demand will drive the changes in the hospitality sectors, the hotel industry in particular.
More International Visitors Are Expected This Year
Foreign visitors are expected to come in larger numbers during 2014:
“Leisure demand from abroad, fueled in part by the new Discover America campaign, will stimulate demand.”
The biggest tourist influx is expected from China: approximately 10 million leisure tourists are projected to visit the USA in 2014. And with the average stay projected at a week, this creates a demand for an additional 70 million nights at hotels across the nation. According to the US Department of Commerce, the United States can expect four percent average annual growth in tourism with nearly 72 million international travelers projected to visit the US in 2014.
Canada and Mexico (the expected growth is 3%)
Europe (the visitor volume is expected to increase by 2.4%): the largest growth will come from U.K., France and Germany
Asia-Pacific (it is expected a visitor increase of 9%), especially from China, India and South Korea
South America (visitor growth is projected to increase by 7%) with Argentina, Columbia and Venezuela producing the greatest growth
More Services via Mobile and Tablet
Fast booking, fast check-in and WI-FI — these are the main millennial requirements for accommodation services. In order to be successful the hotels should meet these criteria. Otherwise, unsatisfied clients will leave negative comments on Twitter, Facebook or TripAdvisor which could destroy the hotel’s reputation instantly. At the same time, the proper use of social media could be beneficial for hotel marketing strategy. We are likely to see investments in technology for nearly all hotels:
“Mobile technology will become ever-more important to the hotel sector as people rely on their smartphones to book rooms and services.”
Sustainability Becomes a New Standard
According to the US Green Building Council, US hotels occupy more than five billion square feet of space. They represent about five million guest rooms and $4 billion in annual energy use. Thus, the hotel industry makes a big impact on the environment. That is why building and environmentally conscious business is becoming one of the most popular hospitality trends. 2014 is expected to see more eco-friendly practices, products and packages.
The hotel developers and owners come to understanding that sustainable development is not just trendy thing, but it could be money-saving for them. TripAdvisor research shows that 58% of travelers would not pay more and expect pay less; 62% of travelers expect hotels to have some type of environmental program.
Limited-Service Hotels Gaining Popularity
The hospitality sector continues to benefit from growing tourism and business travel. Many real estate experts believe that the hotel market is almost back to peak levels. According to the 2014 Emerging Trends survey both limited and full-service hotels will move up in terms of investment ranking. This boost is the consequence of economic recovery and travel increase:
“This recovery is likely to come in part from corporate travel – the bread and butter of the industry,” notes one hotel manager.
Limited-service hotels are expected to be in bigger demand comparing to their full-service counterparts:
“High-quality limited service hotel brands where the interior design, look, touch, and feel tend to mimic full-service hotels will continue to proliferate.”
Limited-service hotels provide only basic amenities and usually do not have restaurants or fitness centers. This type of property has significant appeal to travelers since it offers the winning combination of good prices and all the essential services. The best thing about the limited-service hotels are their cost-efficient buildings and easy maintenance. That is why there are a lot of business ventures in this sector today. The limited-service properties have a growing amount of competition and can also help develop a wider range of business connections. Some of the most successful limited-service hotels are Hampton Inn, Days Inn, and La Quinta.
On the contrary, there is a projected decline in development of new classic full-service hotels. Thus, brands will start to adapt to consumer needs by providing the services that customers are willing to pay for.
48% of the “Emerging Trends” survey respondents — real estate professionals — make buy recommendations on limited-service hotels (second to warehousing). 41% of respondents recommend buying full-service hotels.
The experts put Miami at the top of the list in terms of hotel development and investment prospects, then San Francisco along with New York and Houston.
Investing in Hotel Property: the Main Assets for 2014
Hotel investments are increasingly popular with savvy property investors. This is because it is the easiest way to receive a passive stable income. Here, we list some of the US hotel property available for purchase or lease this year.
La Quinta Inn & Suites Dallas, Mesquite, Texas – a limited-service hotel located in Mesquite, Texas; it has a favorable location and many new upgrades including a new roof two years ago, new room carpeting, bedding and breakfast area, etc.
Borrego Valley Inn, Borrego Springs, California – a limited-service hotel/motel rated 5.0 on TripAdvisor and awarded the 2013 Certificate of Excellence. Amenities include desert and mountain views, free breakfast, guest lounges and two pool areas.
Comfort Inn & Suites John Wayne Airport, Santa Ana, California – a limited-service hotel located in the city of Santa Ana, approximately 30 miles southeast of downtown Los Angeles and 10 miles inland from the Pacific Ocean.
Hilton Garden Inn, Phoenix, Arizona – a full-service hotel designed for both business and leisure travelers. The new Phoenix FBI building opened near the hotel, which ensures that this area will continue to experience exceptional growth and opportunity.
Hilton Los Angeles/Universal City, CA – a full-service eco-friendly hotel that meets standards for waste reduction, as well as water and energy efficiency.
Gaia Napa Valley Hotel, California - a full-service eco-friendly hotel whose name means “Mother Earth” in Greek. It is located on the north of San Francisco Bay Area in California and is easy to reach.
The Ambrose Hotel, Santa Monica, California – is a full-service hotel committed to protecting the environment. It is located in a quiet neighborhood but close to all necessary amenities.
Worries and Concerns
One of the main concerns about future of hotel real estate is that it is likely that the current growth will slow and the upside will be limited soon. It could happen because the supply may come back quicker than demand and “new hotels in high-performing markets can really hurt the market.”
Rising interest costs and regulation is another cause for concern, because nobody is sure that the current trend will continue. A sudden economic downtown can have a serious negative impact on the hotel industry. However, there is no sign of this happening in the near future:
“In an environment of an improving economy, there is more demand for offices, hotels, self-shortage. etc., so it will be an improvement in both volumes and pricing.”
Being one of the top perspective real estate markets, this year the hotel industry provides excellent opportunities for investors. In many ways, hotels benefit from the recent economic rise. Both business travelers and flourishing tourism to the United States stimulate the demand for new hotels’ development. Hotel room rates and revenues have become higher comparing to the previous years.
This year many investors will pay attention to the limited-service hotels, which have become more popular among consumers. Nowadays, the majority of customers want to receive a quality service for a reasonable price – this drives the hotel owners and developers to change their policy to meet the expectations of the Millennials.