While the U.S. economy is proving resilient, the volatile situation in Europe which has been exacerbated by Spain and Greece added headwinds to an already strained recovery. This European recession and slower global growth have weakened the U.S.

economic outlook.

The U.S. labor market has improved, but the rate of improvement reflects only a partial recovery. Consumer confidence remains below “healthy” levels and the recovery has left many households and some industries behind. These persistent factors, along with recent trends led to a downgrade to the U.S. Lodging Forecasts earlier this year. These were presented by the usual prognosticators, but they seem to be wrong.

U.S. Lodging Market

Smith Travel Research data from the first half of 2012 reflects the outlook that times are improving in the lodging sector. In 2011, occupancy in the United States improved by 4.4 percent in 2011 to 60.1 percent and the average rate (ADR) was $101.64, a 3.7 percent increase. This year, the improvement in occupancy is by 3.5 percent while ADR is up 5.1 percent.

As we check in on the top 25 hotel markets in the United States, several are far off from 2007-2008 peaks. Phoenix is off 25 percent while San Diego is off nearly 15 percent. Phoenix is fighting off the 16 percent supply growth that occurred over the last five years while San Diego has faced flat or declining group business due to the recession. While the Leading Economic Indicators are up 5 months in a row beginning in Q4 2011, San Diego will not return to the levels of occupancy and rate peaks of 2007-2008 until 2013-2014 and Phoenix will take longer.

When we look back at recent economic history, we’ve had five recessions in the past 40 years. The oil crisis of 1973-1974 caused a lodging pull back. In those days, we merely put out a vacancy sign to fill our rooms until OPEC caused havoc by increasing the cost of crude oil. In 1980, President Reagan inherited a disastrous economy that included 20 percent interest rate loans (I know, I had one) and it took years to recover.

More recently, the end of the Cold War began a long recession particularly in Southern California. In essence, it lasted from 1991-1995. We then began a strong 1996-2000 period of sustained economic growth. 2001-2002 was the fourth recession I’ve lived through as a hotelier. Fast forward to today and 2003 was the same as 2011…a recovery year that kicked off five years of strong growth.

Today, we are in the third inning of this recovery as we sit in mid-2012. We look for a strong financial performance in the lodging sector as demand outperforms supply through 2015. So it is time to get in the game now if you are not yet “all in” for this recovery!

According to Carroll Rheem, senior director of research for PhoCusWright, the U.S. hotel industry should expect continued growth ahead, albeit at slightly less velocity. The majority of growth is coming from more active travelers on the high end, Rheem said. During 2011, 10 percent of U.S. travelers said they took six or more leisure trips, which is up slightly from previous years.

Gary Oster, U.S. Travel Association’s SVP, Business Development says “consumer confidence is going to drive a return of the leisure traveler in 2012 and adds, “if you take a look at the changes happening from 2008 to 2012 you’ll see, we’re on a significant upswing.”

Luxury travel, which took the biggest hit of all, seems to be coming back strong. Of all travelers changing their approach to leaving home, Bill Sutherland, VP travel Services for AAA sees a seismic shift in the segment of travelers with a household income of $100,000 or more; they’re the largest growth segment. He notes, “There’s some behavior changing. They may cut back slightly on entertainment or dining and reduce the length of stay or downgrade their usual hotel level, but they are not saying they aren’t going to go.”

The most recent issue of Pegasus View stated, “despite lingering unemployment and varying degrees of confidence about local-level economies, vacations are embedded in consumer culture. Aspects of a vacation being taken into consideration by travelers include best-rate guarantees, free breakfast, free high-speed internet access and free parking, which are all areas of opportunity for hoteliers to create the best and most-often booked value.”

The Memorial Day weekend, which is viewed as a precursor for performance in June, July and August, saw strong gains in average daily rate and revenue per available room over comparable weekdays last year, according to Smith Travel Research. This foots well with the above captioned remarks by tourism industry leaders.

Data from TravelClick shows ADR for June is up versus this time last year. The outlook is even stronger for the July to September period, during which ADR is up 7.5 percent. Demand in July and August is up 21.3 percent and 21.6 percent, respectively, the company reported.

“Summer is looking quite strong,” said Tim Hart, TravelClick’s executive VP. “We’re seeing occupancy up in June about 6 percent, in July about 8 percent and up over 12 percent in August. The August numbers are probably more explained by group than it is yet by transient because it’s still a bit early in the transient booking curve, but there’s still quite healthy transient demand building for that period as well.”

The upcoming year is projected to be a better and brighter one for the hospitality industry, but what are the new factors driving the market in 2012? The landscape is evolving quickly as new technology demands that hotels become more social and engaging in their marketing efforts, travelers are looking for the best value propositions, and consumer demand is pushing for hotels to make concerted efforts on property upgrades and improvements.

Trends

From our perspective the trends are clear; mobile web now represents up to 20 percent of all inbound traffic for hotels. Google predicts it will be 80 percent by 2015. Analytics are essential. Insights into guest behavior online lead to promotions and packages that are relevant for how guests want to book. Customer Service is so transparent that anything but “wow” customer service puts you on page 2 of any social media.

San Diego Lodging Market

The San Diego market continues to exhibit signs of positive growth in both occupancy and average rate. In San Diego, the occupancy will finish the year at 71 percent, up 2 percent year over year. ADR will be at $132, up 4 percent over 2011 and revenue per available room (REVPAR) will be up to over $90, an increase of 6 percent. As mentioned earlier, the leading economic indicators are up five months in a row.

At this rate, by 2014, we will have surpassed the peak years of 2007-2008 where we were at 73 percent at over $140. We anticipate this pattern will continue as room demand outpaces supply growth over the next three years or more.

For the year through December, 2011, room demand in San Diego increased 3.8 percent compared to 5.4 percent for California and 5.1 percent for the U.S. The 69.8 percent average occupancy rate enjoyed by San Diego through all of 2011 still stands above both the U.S. and California. Also, while ADR has grown more slowly in San Diego, San Diego’s ADR is still at a premium above both California and the U.S.

Visitor spending in San Diego continued to expand in the second half of 2011, increasing 6.6 percent over the same period of the prior year and is expected to increase 5.2 percent for the year. Traveler spending will be held in check largely by a subdued inflation outlook, growing 4.1 percent in 2012. In the first half of 2012, occupancy in San Diego is up 4.7 percent and average rates are up 2.9 percent.

Threats to San Diego include Disney’s Cars Land which just opened June 15, 2012. This does not mean all leisure travelers will head to Disney instead of SeaWorld’s Manta, Legoland’s Pirate Reef or the San Diego Zoological Society’s outstanding product line. It just means we will need to be very aggressive to compete in the short term and achieve digital market penetration and positive public relations.

That said, we have just been through a difficult three years and all indications are that the economy is beginning to pick up. There are always caveats such as war, terrorism and natural disasters, but notwithstanding the aforementioned, the next several years are likely to be strong. While 2012 did not start out strong in January and February, March through June have been very strong in San Diego.

According to Tourism Economics, early indicators show an expansion in overnight visitors to San Diego in the second quarter, but visitation will slow in the second half of 2012. Beyond 2012, visitor growth to San Diego is expected accelerate in 2013 and 2014, before slowing again in 2015 and 2016. Visitation is forecast to top the 2006 peak of 32.2 million visitors in 2013.

Hotel room demand in San Diego posted an increase of 4.4 percent in the first quarter of 2012, a slightly slower increase than hotel/motel visitation. Yet, average length of stay increased slightly for hotel/motel visitors. The 5.2 million rooms sold in the first quarter surpassed the 3.4 million sold in the first quarter of 2007.

The recovery in San Diego’s hotel sector is slightly outpacing that of the nation and most other major metro area markets. Rooms sold through April were up 4.8 percent versus the national average of 3.4 percent. This rate of growth ranks first among the key markets in California and 8th out of the top 25 markets nationally.

Some supply is entering the pipeline, however, it will take the Convention Center Expansion to stimulate thousands of new rooms entering the planning stage. With that, we wish you a prosperous summer ahead!

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While the U.S. economy is proving resilient, the volatile situation in Europe which has been exacerbated by Spain and Greece added headwinds to an already strained recovery. This European recession and slower global growth have weakened the U.S. economic outlook.
The U.S. labor market has improved, but the rate of improvement reflects only a partial recovery. Consumer confidence remains below “healthy” levels and the recovery has left many households and some industries behind. These persistent factors, along with recent trends led to a downgrade to the U.S. Lodging Forecasts earlier this year. These were presented by the usual prognosticators, but they seem to be wrong.
U.S. Lodging Market
Smith Travel Research data from the first half of 2012 reflects the outlook that times are improving in the lodging sector. In 2011, occupancy in the United States improved by 4.4 percent in 2011 to 60.1 percent and the average rate (ADR) was $101.64, a 3.7 percent increase. This year, the improvement in occupancy is by 3.5 percent while ADR is up 5.1 percent.
As we check in on the top 25 hotel markets in the United States, several are far off from 2007-2008 peaks. Phoenix is off 25 percent while San Diego is off nearly 15 percent. Phoenix is fighting off the 16 percent supply growth that occurred over the last five years while San Diego has faced flat or declining group business due to the recession. While the Leading Economic Indicators are up 5 months in a row beginning in Q4 2011, San Diego will not return to the levels of occupancy and rate peaks of 2007-2008 until 2013-2014 and Phoenix will take longer.
When we look back at recent economic history, we’ve had five recessions in the past 40 years. The oil crisis of 1973-1974 caused a lodging pull back. In those days, we merely put out a vacancy sign to fill our rooms until OPEC caused havoc by increasing the cost of crude oil. In 1980, President Reagan inherited a disastrous economy that included 20 percent interest rate loans (I know, I had one) and it took years to recover.
More recently, the end of the Cold War began a long recession particularly in Southern California. In essence, it lasted from 1991-1995. We then began a strong 1996-2000 period of sustained economic growth. 2001-2002 was the fourth recession I’ve lived through as a hotelier. Fast forward to today and 2003 was the same as 2011…a recovery year that kicked off five years of strong growth.
Today, we are in the third inning of this recovery as we sit in mid-2012. We look for a strong financial performance in the lodging sector as demand outperforms supply through 2015. So it is time to get in the game now if you are not yet “all in” for this recovery!
According to Carroll Rheem, senior director of research for PhoCusWright, the U.S. hotel industry should expect continued growth ahead, albeit at slightly less velocity. The majority of growth is coming from more active travelers on the high end, Rheem said. During 2011, 10 percent of U.S. travelers said they took six or more leisure trips, which is up slightly from previous years.
Gary Oster, U.S. Travel Association’s SVP, Business Development says “consumer confidence is going to drive a return of the leisure traveler in 2012 and adds, “if you take a look at the changes happening from 2008 to 2012 you’ll see, we’re on a significant upswing.”
Luxury travel, which took the biggest hit of all, seems to be coming back strong. Of all travelers changing their approach to leaving home, Bill Sutherland, VP travel Services for AAA sees a seismic shift in the segment of travelers with a household income of $100,000 or more; they’re the largest growth segment. He notes, “There’s some behavior changing. They may cut back slightly on entertainment or dining and reduce the length of stay or downgrade their usual hotel level, but they are not saying they aren’t going to go.”
The most recent issue of Pegasus View stated, “despite lingering unemployment and varying degrees of confidence about local-level economies, vacations are embedded in consumer culture. Aspects of a vacation being taken into consideration by travelers include best-rate guarantees, free breakfast, free high-speed internet access and free parking, which are all areas of opportunity for hoteliers to create the best and most-often booked value.”
The Memorial Day weekend, which is viewed as a precursor for performance in June, July and August, saw strong gains in average daily rate and revenue per available room over comparable weekdays last year, according to Smith Travel Research. This foots well with the above captioned remarks by tourism industry leaders.
Data from TravelClick shows ADR for June is up versus this time last year. The outlook is even stronger for the July to September period, during which ADR is up 7.5 percent. Demand in July and August is up 21.3 percent and 21.6 percent, respectively, the company reported.
“Summer is looking quite strong,” said Tim Hart, TravelClick’s executive VP. “We’re seeing occupancy up in June about 6 percent, in July about 8 percent and up over 12 percent in August. The August numbers are probably more explained by group than it is yet by transient because it’s still a bit early in the transient booking curve, but there’s still quite healthy transient demand building for that period as well.”
The upcoming year is projected to be a better and brighter one for the hospitality industry, but what are the new factors driving the market in 2012? The landscape is evolving quickly as new technology demands that hotels become more social and engaging in their marketing efforts, travelers are looking for the best value propositions, and consumer demand is pushing for hotels to make concerted efforts on property upgrades and improvements.
Trends
From our perspective the trends are clear; mobile web now represents up to 20 percent of all inbound traffic for hotels. Google predicts it will be 80 percent by 2015. Analytics are essential. Insights into guest behavior online lead to promotions and packages that are relevant for how guests want to book. Customer Service is so transparent that anything but “wow” customer service puts you on page 2 of any social media.
San Diego Lodging Market
The San Diego market continues to exhibit signs of positive growth in both occupancy and average rate. In San Diego, the occupancy will finish the year at 71 percent, up 2 percent year over year. ADR will be at $132, up 4 percent over 2011 and revenue per available room (REVPAR) will be up to over $90, an increase of 6 percent. As mentioned earlier, the leading economic indicators are up five months in a row.
At this rate, by 2014, we will have surpassed the peak years of 2007-2008 where we were at 73 percent at over $140. We anticipate this pattern will continue as room demand outpaces supply growth over the next three years or more.

For the year through December, 2011, room demand in San Diego increased 3.8 percent compared to 5.4 percent for California and 5.1 percent for the U.S. The 69.8 percent average occupancy rate enjoyed by San Diego through all of 2011 still stands above both the U.S. and California. Also, while ADR has grown more slowly in San Diego, San Diego’s ADR is still at a premium above both California and the U.S.
Visitor spending in San Diego continued to expand in the second half of 2011, increasing 6.6 percent over the same period of the prior year and is expected to increase 5.2 percent for the year. Traveler spending will be held in check largely by a subdued inflation outlook, growing 4.1 percent in 2012. In the first half of 2012, occupancy in San Diego is up 4.7 percent and average rates are up 2.9 percent.
Threats to San Diego include Disney’s Cars Land which just opened June 15, 2012. This does not mean all leisure travelers will head to Disney instead of SeaWorld’s Manta, Legoland’s Pirate Reef or the San Diego Zoological Society’s outstanding product line. It just means we will need to be very aggressive to compete in the short term and achieve digital market penetration and positive public relations.
That said, we have just been through a difficult three years and all indications are that the economy is beginning to pick up. There are always caveats such as war, terrorism and natural disasters, but notwithstanding the aforementioned, the next several years are likely to be strong. While 2012 did not start out strong in January and February, March through June have been very strong in San Diego.

According to Tourism Economics, early indicators show an expansion in overnight visitors to San Diego in the second quarter, but visitation will slow in the second half of 2012. Beyond 2012, visitor growth to San Diego is expected accelerate in 2013 and 2014, before slowing again in 2015 and 2016. Visitation is forecast to top the 2006 peak of 32.2 million visitors in 2013.
Hotel room demand in San Diego posted an increase of 4.4 percent in the first quarter of 2012, a slightly slower increase than hotel/motel visitation. Yet, average length of stay increased slightly for hotel/motel visitors. The 5.2 million rooms sold in the first quarter surpassed the 3.4 million sold in the first quarter of 2007.
The recovery in San Diego’s hotel sector is slightly outpacing that of the nation and most other major metro area markets. Rooms sold through April were up 4.8 percent versus the national average of 3.4 percent. This rate of growth ranks first among the key markets in California and 8th out of the top 25 markets nationally.
Some supply is entering the pipeline, however, it will take the Convention Center Expansion to stimulate thousands of new rooms entering the planning stage. With that, we wish you a prosperous summer ahead!
R. A. Rauch & Associates
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