If you thought the silver lining of economic uncertainty was a potential decrease in hotel rates, you’re out of luck.
Hotels were a leading source of inflation in the U.S. heading into last summer because people were eager to travel after pandemic restrictions lifted in many parts of the world. However, efforts to rein in inflation have economists debating if the world is on track for a recession and if it will be a brutal one or more of a soft landing.
Don’t expect this uncertainty to bring in an era of cheap room rates at Marriott. If anything, the travel sector is slated to be the shining star of the global economy.
“We’re quite bullish,” Marriott CEO Anthony Capuano told TPG during a breakfast with reporters Tuesday at the Americas Lodging Investment Summit in Los Angeles. “We do not think we have tapped all of the pent-up demand that’s out there for travel.”
While China’s reopening has many economists changing their outlooks to more optimistic territory, Marriott also sees strength in the return of business travel. The hotel brand is upping rates on contracts with larger companies after leaving those at pre-pandemic levels for the first two years of the pandemic. Capuano also pointed to the faster-than-expected return of group business travel as another demand source than can drive hotel rates higher.
“We have been elated at the pace at which group demand has recovered,” he added.
Capuano didn’t provide much about rate specifics in light of the quiet period ahead of the company’s fourth-quarter earnings call scheduled for next month. He did indicate that, based on the data, demand levels don’t show any signs that owners might lose some of the power they have over pricing.
There is a caveat: Booking windows, or how far out people are booking stays, remain shorter than before the pandemic. Marriott’s current average booking window is about three weeks, which means pricing data could change quickly, Capuano noted.
“When we look at the data, we are obviously watching very, very closely all the economic trends, all the discussion of head winds [and] all the debate about the recessionary environment,” he said. “But we’re not seeing it in the data yet.”
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No summer bargains — but no gouging, either
Before your wallet starts to cry, there is some slightly good news.
Hotel rates, while potentially going higher than last year, likely won’t surge as much as they did in the immediate wake of pandemic restrictions lifting. An STR presentation during the ALIS conference showed hotel rates in the U.S. jumped more than 19% last year.
That growth rate is expected to slow to slightly more than 2% this year.
“Even if the anticipated recession is more on the shallow side, performance growth in 2023 will be pretty remarkable,” Amanda Hite, STR’s president, said in a statement. “Gains are slowing, however, with inflation rising at a faster rate than [average daily rates]. Demand continues to trend at record levels with continued strength in the leisure segment as well as a substantial return in group business.”
A new strategy for business hotels
Business travel isn’t back to pre-pandemic levels, and hybrid work models with increased video conferencing can mean less need for business travel. That might lead some to sing a swan song for brands such as Sheraton, Westin and Marriott’s namesake brand since they have historically relied on business travel.
Capuano indicated these brands are all still viable in the current travel environment but likely need a new development strategy. Instead of focusing on business districts, they can work better as components within a mixed-use development.
For example, the Tampa Edition is part of the broader $3.5 billion Water Street Tampa project that included a residential component, a renovation of a Marriott hotel, a new JW Marriott and other amenities like shops and restaurants.
“A big anchor, full-service hotel can really define the overall positioning and quality of the project,” Capuano said.
In short: Perhaps the reports of Sheraton’s death (and the death of Marriott’s other business-centric hotels) were greatly exaggerated.
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