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Hotels Show Strong Global Growth

02/01/2012 | By Carisa Chappell

Hotels Show Strong Global Growth

Hotel fundamentals are improving in the United States, but industry analysts say the real growth in the industry is happening in international markets.

The growth in the lodging industry has been particularly pronounced in developing economies, according to observers. Large hotel corporations, including Hilton and Hyatt, are entering markets like China and India and setting to work building new properties. Michael Fishibin, Ernest & Young's leader of global hospitality services, said the Brazilian hotel market could grow significantly in the coming decade with the FIFA Soccer World Cup and Summer Olympics, coming in 2014 and 2016.

"There's going to be some limited development in the U.S., but overseas, they are going full bore," said Joseph McInerney, CEO of American Hotels and Lodging Association (AHLA). "All of the major chains are developing internationally where there are a lot of opportunities for them."

Meanwhile, Jones Lang LasSalle Hotels is forecasting that international hotel transaction volume will hold steady in 2012. In a report on the lodging market, Jones Lang LaSalle's analysts said they're expecting worldwide transaction levels to at least match 2011 levels, reaching $30 billion again in 2012. That represents a 13 percent increase over 2010 volume.

REITs led the way in terms of investments in the first half of 2011 when global hotel investment volume surged, according to the Jones Lang LaSalle report. However, the analysts attributed the slowed momentum in the second half of the year to the economic uncertainty in both the U.S. and abroad.

"So far, the dislocation in the financial markets has not impacted underlying trading fundamentals," said Arthur de Haast, chairman of Jones Lang LaSalle. "This has reassured investors to a certain degree and has underscored the attractiveness of high-quality, income-producing hotel real estate as an asset class."

U.S. Trends

The construction of new hotels in the U.S. has historically grown at an average of approximately 2 percent per year, but Fishibin said the recent growth rate has been less than 1 percent per year, and that is expected to continue. Domestically, the level of demand doesn't warrant significant growth at this point, according to McInerney.

"We will see some growth this year, and the average room rate will go up," said McInerney, adding that the major markets in the U.S., such as New York, Chicago and Boston, will see more demand than the secondary markets. McInerny pointed out that the U.S. industry is starting to see smaller boutique properties being developed to meet the preferences of a new generation of travelers.