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Why the hotel business is doing so well right now

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Life is sweet if you’re a hotel chain right now. While there’s a shortage of hotel rooms in the U.S., demand is up, so hotels can charge more.

The shortage is a leftover from the recession, when hotel construction plummeted. It’s still not up to pre-recession levels.

“We’re about 40 percent below the peak,” says Bobby Bowers, senior vice president of operations at STR travel research. “It’s just been extremely low room-supply growth for a fairly extended period of time.”

But won’t demand for hotel rooms fall because of competition from upstarts like the sharing service Airbnb? Not according to Smedes Rose, a senior analyst at Citigroup.  He says the all-important business traveler is sticking with hotels.

“They’re not really flocking to Airbnb,” he says. “Partly because there’s a convenience factor for hotels. There’s probably a liability factor — travel policies that companies have in place.” 

Hotels are also diversifying, with different brands catering to specific travelers. Surprise, surprise! The latest trend is hotels for millennials.  

Those feature “larger square footage for the lobby and the bar area,” says Lauro Ferroni, head of hotel research at JLL, a commercial real estate service firm. “Of course, everything is wired.”

The big chains are also getting out of real estate, just managing or selling franchises instead of owning, sitting back and collecting fees, no matter what happens to supply and demand.

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