PHOENIX — The hotel industry is in a unique circumstance of arguably being in the midst of an upswing at the same time as the broader economy nears the onset of a recession.
Speaking during the "A View from the Top" panel at the 2022 Lodging Conference, Apple Hospitality REIT CEO Justin Knight said he's never had to talk through both occurrences with investors at once before.
"This is the first time in 25 years that I'm talking about a recovery and recession at the same time," he said. "I think we have incredibly interesting dynamics for our industry right now, because we are, I think, on the margin continuing to see recovery in our business despite the fact that when you look at the macro numbers for the overall economy there are some troubling areas."
Aimbridge President and CEO Michael Deitemeyer said the thing that gives him pause as he thinks about a possible recession is how leisure demand has had an outsize impact on the ongoing demand recovery, and it's unclear just how sustainable that will be if business travel continues to lag.
"When I think about the economic news, it's really the sentiment change and what does that do to business travel coming back," he said.
Deitemeyer said the early signs haven't lived up to hoteliers' hopes.
"Business travel is coming back much slower," he said. "I was optimistic that post-Labor Day it would happen, and it really hasn't tipped at all. ... I'm cautiously optimistic that we push through this with leisure continuing to help the pace. Even though it's softened a little bit, it's still ahead of what it was in 2019."
Arash Azarbarzin, CEO of Highgate, said he still hopes the economic recession will be short and shallow, but that's not necessarily what he's expecting.
"I hope it doesn't last much longer, but our estimates and our thinking is it will carry through the fourth quarter," he said. "Then we're hoping to see a turnaround in the first quarter of next year. The travel on the leisure side of our business and that crazy, mad spending has slowed down. The question is: 'Is the corporate traveler going to come back this quarter or next quarter?'"
He said that trajectory of business travel will determine whether the hotel industry dives into a deep downturn or if it returns to a more typical business mix like what was seen pre-pandemic. But much like Deitemeyer, Azarbarzin has yet to see signs of a big spike.
"If corporate travel comes back, we'll ride that wave into next year," he said. "We haven't seen any indications of a slow yet, but we haven't seen that upshot that we're looking for either. So my guess and my hope is by the first quarter [of 2023] we're out of this."
Mit Shah, CEO of Noble Investment Group, noted the hotel industry has had a unique challenge in trying to race with inflation.
"The real question is can we move rate and pricing power faster as other kinds of spending slow down and interest rates go up," he said. "I think we feel a lot differently about it than we did six months ago."
Gilda Perez-Alvarado, global CEO of JLL Hotels & Hospitality, described an economy recession as "the biggest risk we're all facing at the moment."
But the group wasn't purely pessimistic. Greg Juceam, President and CEO of Extended Stay America, said his company — and the broader extended-stay segment — significantly outperformed the rest of the hotel industry even during the deepest depths of the COVID-19 pandemic-induced downturn in 2020, and they would be similarly poised even in the face of a deep recession.
"It's a great time to be in extended stay," he said.
Juceam's expectations for a recession are worse than Azarbarzin's. He said he expects the economy to recover by the fourth quarter of 2023. But that doesn't necessarily mean he's expecting corporate spending to go away forever.
"I think a lot of corporations just are uncertain, right now," Juceam said. "While I do think capital spending will go up, overall people just took a measured approach to stop hiring for a minute, and they just want to wait and see. I think that will carry through and things tend to take longer than we hope in our industry sometimes."