Good News for the Business Cycle and the New Economy
Hotel demand has just reached an all-time high in the U.S., according to CBRE Hotels’ Americas Research. Occupancy levels and demand for rooms are also buoyant in Europe and Asia Pacific.
Demand for hotel rooms is highly sensitive to business conditions, particularly on the downside.
When business revenues and personal incomes are squeezed at the end of the cycle, hotel demand drops away very quickly. Hotel demand has shown strong growth since the middle of 2016, suggesting that business conditions in the U.S., and elsewhere in the world, are robust despite relatively weak GDP growth.
Why is hotel and non-hotel lodging in such high demand?
- The business cycle is more robust than the GDP numbers suggest. Government statisticians can’t quite keep track of the increasingly important virtual economy; and, the current recovery, which drives demand for hotel rooms, is stronger than we think. I give this three out of five as an explanation.
- Demographic change is boosting demand for experiences over physical goods. Older consumers spend a higher proportion of their income on health, education, recreation and leisure. Since 2000, the population of the U.S. over the age of 45 has increased by 45%. Millennials, too, have a high propensity to travel.2 I give this four out of five.
- Hotels are getting better at delivering a great experience at whatever price point consumers choose. Four out of five.
- Online platforms such as Priceline, Expedia, Kayak, Trivago, Hotels.com, etc. have made the process of booking hotels incomparably easier, and consumer reviews have increased the transparency of the marketplace. I give this five out of five.
- Budget airlines have revolutionized global travel. It is now possible to circumnavigate the globe with budget flights for $1,620. Legacy carriers (i.e., non-budget airlines) would charge $3,877.3 Five out of five.
Read the full article at CBRE