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The State of the Lodging Industry in 2014

The State of the Lodging Industry in 2014

johnsonthumbNancy Johnson, 2012 AH&LA Chair and EVP of development for the Americas at Carlson Rezidor Hotel Group

Lodging: What’s your take on the economic impact from the ongoing dysfunction in Washington?

Johnson: The American people are getting so tired of it, and I just hope that they don’t become so frustrated that they bow out because now’s the time to get engaged and get involved. This is a great democracy and it works when people make it work. I think that’s really what AH&LA is set up for now is to really create grassroots efforts to get our issues addressed. With the membership [model] now with the individual hotels, we’re able to have those individual hotels writing their legislators. And I think that is really critical because it’s the voice of the individual that is going to make the biggest difference in the next election.

Lodging: How do you see the health care act affecting the lodging industry, and what is AH&LA doing to shape it?

Johnson: What AH&LA is lobbying for is really to make sure that the standards that are written are understandable, that the technologies that are provided are accessible, and that businesses understand exactly what their choices are. What’s happening now with the insurance companies being dropped because they did not comply with these new standards is a concern for our industry. AH&LA wants to make sure [the regulations] are cost effective from a business standpoint and beneficial from a compliance standpoint. It’s the most significant concern we have and one we will continue to watch.

Lodging: The other big issue floating out there is the living wage initiatives. Can you speak to them?

Johnson: We are seeing it come up in spots across the country, Seattle being the most prominent and one that’s happened recently. The issue, the concern is, taking it up to $15 an hour. Well, that starts making the business scenarios of those hotels less attractive. Can you imagine if you were applying for a mortgage or refinancing and all of a sudden your bottom line is hit by this new added expense? So those are the things that we just need to continually lobby Congress and the Senate and legislators across the country that they need to understand from a business perspective what this means. In that particular instance, I don’t think they gave enough consideration to what they were doing.

Lodging: But, do you think there will be anything accomplished between now and the next election?

Johnson: I think to pass the big things—to pass immigration and to really get the debt ceiling and the budget crisis under a good long-term solution—is going to be difficult with the political climate in D.C. right now. So you’re going to see big issues, such as immigration, broken apart into smaller issues that we can get done. We have nearly 100-something signatures on the JOLT Act, and if we get that up to 160, that’s a slam dunk. That will help on the visa issue and the waiver country issue.

Lodging: With lodging, the fundamentals are good in terms of being able to capture rate, but there’s always the specter of overdevelopment hanging over everything. Do you see that as a danger?

Johnson: You sure do see pockets of it, such as New York City. The number of rooms they’re adding this year is astronomical. In a city like New York it might be sustainable, but it still takes a while to absorb those rooms. There are those pockets of the top 10 markets that may get into an overbuilding status, because there is so much private money and foreign money coming into those cities. We still are growing at a slower pace in secondary and tertiary markets, which is controlling the supply to a certain degree, but mark my word the minute the money becomes available it will start becoming a supply problem again.

Lodging: So financing is still keeping development a bit in check?

Johnson: It is. Well, it’s certainly keeping the occupancy up. Also, hoteliers have been reluctant to be aggressive on rate. The rate is now starting to come back up, but we had the supply demand ratio in a favorable situation for the last two to three years, and the industry still didn’t raise the rates enough. That’s the catch-22 of the brands giving relief during the recession on upgrading their hotels. It’s difficult to raise the rates when you haven’t put money back into the business.

Lodging: So you see that changing?

Johnson: It is changing now. The brands are saying, ‘OK, we gave you time, now let’s get back to improving the quality.’ If you have a new hotel opening up down the block from you, then you better be putting money into your property that makes it look as good as new.

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