After spending two days in sessions and the hallways at the 46th annual NYU International Hospitality Industry Investment Conference, I am now less optimistic than I was at the beginning of the conference on Monday morning.
Sure, we live in the golden age of travel, and the new U.S. hotel forecast from STR and Tourism Economics calls for continued growth in top-line metrics. However, some speakers with a macro perspective were flashing verbal caution signs.
It took Ellen Zentner, the U.S. economist for Morgan Stanley, roughly 105 seconds in her opening keynote to say: "…as we head toward a recession." She quickly pointed out that "macroeconomic activity is slower but not falling," but I found the opening to her presentation unexpectedly sobering.
Zentner's session title, "Migration and Mortality," also pointed at one of the main engines of the American economy: continued immigration. Without immigration, there cannot be sustained economic growth. As a U.S. election looms, Zentner shared what we have heard from other economists: Labor force participation of U.S. immigrants is higher than for U.S. citizens, and immigration equals lower wage pressure. The government statistics may have undercounted immigrants by as many as 2 million, and often these workers get a tax I.D. number within six months and can start to be productive and pay taxes. The hotel industry relies on many of these entry-level workers for our labor force. Zentner's outlook for the election outcome was blunt: "All scenarios imply less immigration. And that has negative implications for the economy." And, I hasten to add, negative fallout for the hotel industry.
Jonathan Gray, president of Blackstone, has insights into the activities of the over 230 companies Blackstone owns. He struck an equally muted tone when he suggested that the economy was slowing. Gray expects interest rates to be cut "later than folks think," but he clearly felt that now is the time to act. In his words, "That’s when we're trying to lean in a bit." And many acquisitions across the real estate spectrum show that Blackstone is leaning in hard.
Some IREAFAC panel members talked about expanding their offerings not necessarily through acquisitions but through partnerships; think tented camps for Hilton or high-end cruises for Ritz-Carlton. If the true value of a brand keeps being forged through credit cards, as Shai Zelering from Brookfield mentioned, then expect to see many more offerings that may be affiliated with hotel brands but are not brick-and-mortar hotels.
As expected, the CEO panel on late Monday morning was all unicorns and rainbows, with a solid outlook and brand CEOs bullish on long-term global growth rates. But the always sharp Sara Eisen from CNBC, moderating the white men on stage, did not let them get away without pointing out: "Last year we were talking short term because things were good. Now we are talking long term." This astute observation speaks about the current weakness in some parts of the market.
Putting these comments into a data perspective, Amanda Hite, president of STR, CoStar's hospitality analytics division, presented the latest 2024 growth forecast for revenue per available room of 2%. But remember that this is a downward revision from the projected 4.1% STR released in late January for the year. Other industry prognosticators are of a similar mind.
Talking to investors and brokers about the real estate side of the business, the recurring theme seemed to be "pent-up." Whether deal flow, investments, property-improvement plans or refinancing, all those topics did not seem to have much activity so far this year. Still, there was a strong expectation of more velocity in the coming six months. Andrew Dickey from JLL mentioned that his company "never had a larger backlog than we have today, waiting for the Fed rate cut."
One topic continually missing from these conferences is climate change and building more resilient hotels. The National Oceanic and Atmospheric Administration, or NOAA, has been clear in its warning for an above-normal Atlantic hurricane season this year. Suppose even the lower end of the eight to 13 expected hurricanes materializes. In that case, hoteliers up and down the eastern seaboard and the Caribbean will likely need to contend with lost business and ever-higher insurance rates in the coming years. It is really underwhelming how little weather impact is discussed by those who own the assets.
Looking ahead to the summer and fall, we will hopefully be able to answer some of the looming questions on operators’ minds. Will group demand continue to grow as projected? Will office vacancies stabilize, and will that drive urban hotel demand? Will high-end travelers go abroad or stay in the U.S.? Will the average consumer feel the pinch from higher costs for products and services and not travel as much?
As some macro indicators show signs of cooling, owners, and operators must contend with the bifurcated results. We will continue to monitor the data and remind clients that a slower rate of growth is still growth, and that is worth focusing on.
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