Business Hotels Better Positioned in Current Market Environment, Analyst Says

Lukas Hartwich, analyst with Green Street Advisors, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Hartwich focuses on the lodging sector. He discussed whether business travel or leisure travel is better positioned in the current market environment.

“The short answer is business hotels are tending to do better,” he said. “The reason why is, if you take a step back and look at where we’ve come from, it makes a lot of sense. Who was hit hardest in the downturn—it was the consumer, who makes up the majority of leisure travel. They were kind of hit with a double whammy—they lost their jobs, and another factor was that the value of their homes, which makes up a considerable portion of their net worth, clearly was hit pretty hard. Now if you look at corporations, they’ve been able to cut expenses pretty dramatically, and maintain profitability.”

Hartwich also talked about whether or not lodging REITs are beginning to get their pricing power back.

“Definitely, they are,” he said. “I think what’s interesting is, today if you look at RevPAR growth, the majority of it is coming from rate growth. While there is rate growth, it isn’t as strong as in prior recoveries. The biggest explanations for that are both leisure, which we just talked about, and more so group business. That segment of the market is really tied into overall macroeconomic activity and a robust economic environment, and we’re just not seeing that today.”

Hartwhich shared his opinion regarding what the big story will be in the lodging REIT sector in the course of the next six months.

“For me, it’s how we’re going to keep up this momentum,” he said. “We’re in our fourth year of RevPAR growth, in the six percent plus range. That’s pretty remarkable when you consider how lackluster the macro environment is. So, I really want to see what’s going to continue driving it.”