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The 29th Annual Lodging Conference brought together almost 3,000 hotel executives filled with cautious optimism in Phoenix. Most participants agreed that the Federal Reserve is likely to continue reducing interest rates, yet they had concerns about the potential implications for the overall economy. There is a growing anticipation for an increase in transaction volume next year spurred by lower interest rates.
Economic Predictions and Key Concerns for Hospitality
Bernard Baumohl, chief global economist at The Economic Outlook Group, delivered an encouraging message to attendees that industry fundamentals are strong and expects them to remain so in 2025. He predicts the Fed will cut interest rates another 25bps in November and December. However, he warned of three concerns that could impact the overall economy: the speed at which the Fed will lower interest rates, ongoing global geopolitical crises, and the 2024 US presidential election.
Three Concerns That Can Impact the Economy
the speed at which the Fed will lower interest rates
ongoing global geopolitical crises
the 2024 US presidential election.
Geopolitical Risks and Consumer Spending on Lodging
Baumohl raised concerns about the continued turmoil in the Middle East and its potential to escalate, which could drive up oil prices and complicate the Fed's ability to lower interest rates. He also noted that consumer spending, particularly on lodging, may be affected by the increasing debt consumers carry on credit cards. For the first time since the pandemic, Baumohl mentioned declining lodging spending for Q2 2024. Regarding the election, Baumohl expressed concerns over the economic plans for both candidates, predicting Vice President Harris’s plan would increase the debt by $3.50 trillion through 2035, while President Trump’s plan would increase the debt by $7.50 trillion (source: Committee for a Responsible Federal Budget) He noted Trump's tariff strategy could be inflationary, and his push for greater control over federal interest rate policy could influence the Fed's actions in the short term.
Investment Opportunities from Rate Cuts
Becki Cohen, chief of staff, Peachtree Group, discussed the positive impacts of potential rate cuts on the investment landscape. "It's an exciting time for investors. The market has improved, and there are strong indications that confidence is returning, with a lot of dry powder on the sidelines." This sentiment was echoed by Barbara Purvis, president of Essex Hotel Management, who said these rate cuts, combined with favorable economic indicators such as strong job growth and lower inflation, "should bode well for continued improvement in the investment outlook for hotel assets."
"It's an exciting time for investors. The market has improved, and there are strong indications that confidence is returning, with a lot of dry powder on the sidelines." –– Becki Cohen, chief of staff, Peachtree Group
Cohen cautioned that rising long-term Treasury yields could offset the benefits of lower interest rates. "Higher long-term rates are driving up refinancing costs and squeezing property values," she explained, emphasizing the challenges that lie ahead for real estate investors accustomed to a low-interest-rate environment. The anticipation of stabilizing the federal funds rate, landing in the low- to mid-3% range, represents a dramatic shift in borrowing costs, directly impacting the commercial real estate market.
Regional Market Trends: Investment Hot Spots in the South and West
Market dynamics vary significantly across regions, with the so-called "Smile States"—southern and western US states like Florida, Texas, and Arizona—emerging as hot spots for investment. Dina Belon, president, Staypineapple, said, "I think the southern markets are performing better than where we're located in the northern states. Currently, San Diego is the only property we have that has a different seasonality than all nine other hotels." She mentioned a desire to expand into states like Texas, Arizona, and Florida while also exploring the opportunity of acquiring smaller hotels near existing assets. Purvis discussed how it will be interesting to see if the "impacts of recent storms, most recently Hurricanes Helene and Milton, and wildfires and associated rising insurance rates, will have some impact on some of those markets."
Hotel Brand Expansion: Growth and Cannibalization?
Hotel brand companies keep expanding the number of brands in their family. Rachael Rothman, head of hotels research at CBRE, in her Speed Statistics session, shared a slide titled, "New brands grow the total addressable market, but cannibalize existing properties," which showed the average number of brands per brand family increased from 13 in 2013 to 25 in 2023.
"New brands grow the total addressable market, but cannibalize existing properties," –– Rachael Rothman, head of hotels research at CBRE
"The companies are introducing new brands to target new markets, offer a distinct experience, and increase brand loyalty. I don't know that I see it necessarily reversing. I do think it would be wise for the brands to consider streamlining their portfolios. You're seeing owners and operators becoming more selective in the brands they choose, looking for those that cater to the demands of guests and provide superior returns," said Brittney Jones, chief development officer at Brittain Resorts & Hotels.
Over-Tourism in Europe Boosting US Travel Demand
In light of the recent backlash against over-tourism in Europe, experts are optimistic about its impact on US leisure travel. Cohen commented, "While domestic demand softened after the pandemic as American travelers flocked to international destinations, the US tourism market remains robust, especially for those with the right offerings. For instance, five national parks broke attendance records last year, demonstrating that well-managed, attractive destinations are still thriving.
Over-tourism in Europe, resulting in overcrowded cities, higher costs, and strained infrastructure, has left many travelers seeking alternatives. This presents a clear opportunity for US destinations to capitalize on the shift, particularly for leisure travel." Purvis took a different view with thoughts that some international locations may see a decline in US tourism, but the "strength of the dollar will continue to fuel visitation overseas. Leisure's general pull-back on travel due to ongoing concerns about the economy and reduction in discretionary spending may mute any redistribution of tourism dollars back to the states. Leisure demand continues to normalize post-Covid, and we are seeing several markets showing some softness and experiencing corrections in occupancy and ADR. The softer growth of international visitors inbound to the US has been hindered by the strong US dollar, natural disasters, the current political climate, and the US's less-than-welcoming travel visa policies."
Business Travel Recovery: Market-Specific Trends
According to recent reports, business travel is starting to recover as organizations resume in-person meetings and events. Jones remarked, "We have seen a growth in the corporate group segment. We've seen an increase in room nights because of corporate meetings happening at convention centers, with a lift in ADR by about $10 to $15." Belon noted that while business travel is still not back to pre-pandemic levels, the recovery is very market-specific, "Chicago is exceeding 2019 levels, while San Diego is choppy. I think markets are performing differently, and that's the new normal."
Sheila Johnson Honored with Peggy Berg Castell Award
Congratulations to Sheila Johnson, CEO, founder and CEO of the Salamander Collection, on being honored with the Peggy Berg Castell Award by AHLA Foundation in recognition of her achievements in hospitality.
"I am honored to be a recipient of the Peggy Berg Castell Award and to be recognized in our industry as a champion for women. I share this award with my entire team of dedicated professionals who also share my values," –– Sheila Johnson
AHLA Forward Reception Draws a Crowd
The AHLA Foundation held a ForWard reception on the first day of The Lodging Conference. It was a packed house with women and men industry leaders, including Julie Arrowsmith (Studio 6), Geoff Ballotti (Wyndham), and Dina Belon (Staypineapple). Attendees caught up with old friends and made new connections. Students from HBCUs Morgan State University and North Carolina Central University also mingled with attendees to hear first-hand advice about entering and growing their careers in the hotel industry.
Good Vibes at the "Ladies Lounge"
Over the course of two hours, the Ladies Lounge hosted by Kelli Groh (Groh Hospitality Collective, Renee Bagshaw (Continental Contractors) and Emily Mueller (Delta Faucet) welcomed about 75 women who engaged in insightful conversations, reconnected with industry friends, and forged new connections. Guests like Ariel Sannet (Ennismore), Stacy Shoemaker (Hospitality Design), Betsy Hughes (11Fiftynine Design) and Heather Cisczon (NuovoRE) were just a few ladies to enjoy the impeccable suite that was generously donated by Continental Contractors. There’s already excitement buzzing about next year’s event, and the hosts are eager to once again bring this impactful gathering to the renowned Lodging Conference.
