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Analyst Expects Growth Trends to Continue for Lodging Sector

12/20/2013 | By Mitch Irzinski

Patrick Scholes, equity research analyst with Suntrust Robinson Humphrey, joined REIT.com for a video interview at REITWorld 2013: NAREIT’s Annual Convention for All Things REIT at the San Francisco Marriott Marquis.

The hotel sector has been a strong performer in 2013. Scholes was asked if the trend will continue in 2014.

“We’ve started to see a nice pick-up in group transfer next year, and I think that’s going to give an extra leg to revenue per available room (RevPAR) for next year. We could see it (at) six, possibly seven percent, and certainly that’s going to allow for some nice margin growth for these companies - and it will keep investor interest in the sector,” Scholes said.

Scholes also discussed supply trends for next year.

“I’m not concerned about it,” he said. “Through a lot of the data surveys we do, supply is roughly one, maybe one and a half percent for the industry on average next year. “

Scholes noted that there are some markets where supply will be a concern, such as New York, Washington, D.C., and Nashville, but most markets overall will see less than one percent of new supply next year.

Scholes was also asked if growth in the lodging sector is going to come more from individual travelers, or group business.

“The growth will still be driven primarily by individual business travelers,” he said, although Scholes noted that leisure travel will also be strong, at least through February and March.

“What’s really going to help is the pick-up in demand, and what that causes is something called compression – essentially, lack of last room availability. If you’re the hotel company, it’s great, you can increase your prices,” Scholes said.

Scholes also explained that having a better base of group demand helps with revenue and yield management. If hotels have a better idea of how full their hotel is, they  can price more accordingly for the last minute booker, he said.