If you thought economic uncertainty was a possible drop in hotel rates, you’re out of luck.
Hotels were a major source of inflation in the US heading into last summer as people were eager to travel after pandemic restrictions were lifted in many parts of the world. However, efforts to curb inflation have economists debating whether the world is on track for a recession and whether it will be one or more of a soft landing.
Don’t expect this uncertainty to usher in an era of cheap Marriott room rates. Either way, the travel sector is slated to be the shining star of the global economy.
“We’re quite Bulgarian,” Marriott CEO Anthony Capuano told TPG during a breakfast with reporters Tuesday at the Americas Lodging Investment Summit in Los Angeles. “We don’t think we’ve tapped into all the pent-up demand that’s out there for travel.”
While China’s reopening has caused many economists to shift their views into more optimistic territory, Marriott also sees strength in the return of business travel. The hotel brand is raising fees for contracts with larger companies after leaving them 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 source of demand that could boost hotel rates.
“We have been delighted with the pace at which group demand has recovered,” he added.
Capuano did not provide much on the specifics of the fees in light of the quiet period before the company’s fourth-quarter earnings call scheduled for next month. He indicated that, based on the data, demand levels show no sign that landlords may be losing some of their power over prices.
There is one 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 can change quickly, Capuano noted.
“When we look at the data, obviously we’re watching very, very closely all the economic trends, all the discussion of head winds. [and] the whole 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 collapse either
Before your wallet starts crying, there’s some slightly good news.
Hotel rates, while potentially higher than last year, will likely not rise as much as they did in the immediate wake of the lifting of pandemic restrictions. A STR presentation during the ALIS conference showed that US hotel rates rose by more than 19% last year.
This growth rate is expected to slow to just over 2% this year.
“Even if the projected recession is more on the shallow side, the increase in performance in 2023 will be quite remarkable,” Amanda Hite, president of STR, said in a statement. “Earnings are slowing, however, with inflation rising at a faster pace than [average daily rates]. Demand continues to trend towards record levels with continued strength in the leisure segment as well as a significant return to the group business.
A new strategy for business hotels
Business travel has not returned to pre-pandemic levels, and hybrid work models with increased video conferencing may mean less need for business travel. This may lead some to sing a swan song about brands such as Sheraton, Westin and Marriott’s namesake brand, as they have historically relied on business travel.
Capuano indicated that these brands are still viable in the current travel environment, but likely need a new development strategy. Rather than focusing on business districts, they may work better as components within a mixed-use development.
For example, the Tampa Edition is part of the larger $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 such as shops and restaurants.
“A great anchor, full-service hotel can really define the positioning and overall quality of the project,” Capuano said.
In short: Perhaps reports of the demise of the Sheraton (and the demise of Marriott’s other business hotels) were greatly exaggerated.
