If you think economic uncertainty can drive down hotel prices, you’re out of luck.
Hotel is a leading source of inflation United States entered last summer because people are eager to travel after pandemic restrictions are lifted in many parts of the world. However, efforts to contain inflation have economists debating whether the world is on the cusp of a recession and whether it will be a soft landing.
Don’t expect this uncertainty to bring about the era of cheap room rates at Marriott. If anything, the tourism sector is expected to be the shining star of the global economy.
“We’re pretty bullish,” Marriott CEO Anthony Capuano told TPG during breakfast with reporters Tuesday at the Americas Lodging Investment Summit in Los Angeles. “We don’t think we’ve fully exploited the existing pent-up demand for travel.”
While China’s reopening has caused many economists to shift their views to more optimistic territory, Marriott is also seeing strength in the return of business trips. The hotel brand is increasing contract prices with larger companies after leaving those contracts at pre-pandemic levels for the first two years of the pandemic. Capuano also points out that a faster-than-expected return of group business travel as another source of demand could push hotel prices higher.
He added: “We are excited by the speed of recovery in group demand.
Capuano didn’t provide many rate specifics due to the quiet period ahead of the company’s fourth-quarter earnings call expected next month. He pointed out that, based on the data, demand levels don’t show any indication that holders might lose some of the power they have over pricing.
One caveat: The reservation period, or the length of time people book to stay, is still shorter than it was before the pandemic. Capuano notes that Marriott’s current average booking period is about three weeks, which means pricing data can change quickly.
“When we look at the data, it becomes clear that we are watching very, very closely all the economic trends, all the headwind discussions. [and] all the debate about environmental degradation,” he said. “But we haven’t seen it in the data yet.”
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No summer bargains – but no undercuts either
Before your wallet starts to dry up, there’s some good news.
Hotel prices, while potentially going higher last yearlikely won’t spike as much as they did immediately after the lifting of pandemic restrictions. A presentation by STR during the ALIS conference showed that hotel prices in the US increased by more than 19% last year.
That growth rate is expected to slow to more than 2% this year.
Amanda Hite, president of STR, said in a statement: “Even if the recession is predicted to be less severe, the rate of performance growth in 2023 will be quite remarkable,” Amanda Hite said. Hite, president of STR, said in a statement. “However, growth is slowing with inflation rising at a faster pace [average daily rates]. Demand continues to trend at record levels with continued strength in the entertainment segment as well as significant gains in the group business.”
New strategy for business hotel
Business travel has not yet returned to pre-pandemic levels, and increased work patterns combined with video conferencing could mean less demand for business travel. That might lead some to sing a swan song for brands like Sheraton, Westin and Marriott’s namesake brand because they have historically relied on business trips.
Capuano says these brands still exist in the current travel environment but may need a new development strategy. Instead of focusing on business zones, they might work better as components in a mixed-use development.
For example, the Tampa Edition is part of a broader $3.5 billion Water Street Tampa project that includes a residential component, a Marriott hotel renovation, a new JW Marriott, and other amenities like doors shops and restaurants.
“A large, full-service hotel can really define the overall location and quality of the project,” says Capuano.
Bottom line: Perhaps the reports of Sheraton’s death (and the deaths of Marriott’s other business-focused hotels) have been greatly exaggerated.