In the Words of Chesapeake

Hold the line and keep your eye out for opportunities

Hold the line and keep your eye out for opportunities

April 21, 2017

Barring catastrophic, surprise events like 9/11 or the deep recession of 10 years ago, there’s no bad time to acquire, let alone run, a hotel. Even when the hospitality economy is flattening, as it is now, doing either, or both, may not be a bad thing. In fact, a flat economy may be just the context in which to leverage a property’s appeal, applying sound management principles to the maximum.

As Deloitte US notes, the global economy is in flux and there’s geopolitical turmoil worldwide, making travel unsettling. Despite that, consumer spending on travel is rising and the labor market continues to improve. That’s the good news.

But Deloitte also warns: “The recent recession was a harsh reminder that consumers will be quick to cut travel from their budgets at the mere hint of a financial downturn.”

This year, for the first time in years, supply effectively outpaced demand, meaning that marketing is ever more critical to healthy rates. That doesn’t mean consumers aren’t spending, however. In fact, says Chesapeake Hospitality Principal and COO W. Chris Green, where consumer spending rose by 3 to 5 percent in other areas, it jumped 40 percent in hospitality over the past seven years – including years in which a hotel economy recovering from the recession went on a building spree.

Most industry forecasts expect Rev PAR to rise by 2 percent (down from a peak of 8 percent in recent years) this year, with demand lagging at 1.7 percent. That mix is expected to lead to a fractional drop in occupancy, which has been at record levels for years.

So that boom is indeed over, suggesting it’s time to hunker down and take full advantage of the marketplace. There are opportunities to do so. The key is identifying them and then leveraging them.

When supply outstrips demand, says Chesapeake Hospitality’s Green, “it always flattens out the future growth of the business for a while, until demand crosses back over the supply line. That means during that period you’re going to have additional challenges, additional headwinds to your operation, which are the new supply in the marketplaces.”

The trick is to keep a sharp, analytical eye on what your property is doing right in terms of growing its market – and to fix areas in which it’s lagging. This is the time for hoteliers to look at hotels where people may have experienced growth and success over the past several years but haven’t really taken full advantage of that because, obviously, with a rising tide all boats go up.

Take full advantage of the marketplace. It may be flattening, but not for lack of opportunity. Chesapeake can help you identify where such chances are worth taking even though the hotel economy has cooled.