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17 Dec, 2019

Hoteliers warned of impending recession

BOCA RATON, Fla., 12 December 2019, PRNewswire – As 2020 rapidly approaches and the hotel industry is wrapping up its 10th consecutive year of growth since the Great Recession, hospitality industry professional MaryJo Finocchiaro, Chief Financial Officer at BRE Hotels & Resorts, offered her opinion on the hotel macroeconomic outlook for the coming year and beyond.

“Hotel upcycles typically last for no more than a decade before the industry encounters a period of softening in demand and we’re approaching that in the coming year,” Finocchiaro said. “Additionally, socioeconomic and geopolitical events have also historically plagued the broader macroeconomic landscape in advance of the softening market, and we have certainly been experiencing these types of events over the last few years.”

She remarked “low unemployment continues to drive wage growth which puts pressure on the hotel and resort industry given the significance of labor expense in relationship to total hotel operating costs.” In addition, she said that the Turner Construction Cost Index grew over five percent for the first nine months of 2019 which adversely impacts the cost of new build projects or enhancements to existing hotels and resorts.

According to MaryJo, hotel owner and operator views are aligning in that 2020 will be characterized by moderating revenue growth compounded by a continued rise in operating costs – particularly labor expense, property insurance and real estate taxes. Additionally, expect a slowdown in national housing starts given escalating construction costs, resort capital spend is also expected to slow as well as broader business investment. The outcome to our industry is that discretionary consumer spending including in hotels and resorts will decrease.”

“Optimism for perpetual gains is being replaced by caution, but hotel owners can also use this time to optimize their portfolios,” Finocchiaro added. “The environment is ripe for owners to refinance debt in order to free up equity in the backdrop of a low interest rate environment.”

Despite the likely economic challenges, the hotel industry should withstand the impending recession, predicted by many to begin over the next year. “Smart hotel owners who planned accordingly should be especially well poised to weather a recession assuming they’ve used the time since the last recession to create strong portfolios and contingency plans,” Finocchiaro said.