On tour with Trump and Clinton: what the US election means for Washington DC hoteliers
When Barack Obama was first inaugurated as president in January 2009, it was a landmark moment, with an estimated 1.8 million people attending the event. Hotel rates rocketed and customers had to guarantee several nights. But what does the next election have in store for the sector?
Trump 1 or Clinton 1?
Hoteliers are once again rubbing their hands together over a “compression event” for the sector where, on 20 January next year, the world’s media will descend on Capitol Hill to inaugurate the next President of the United States.
The previous two events 'Obama 1' and 'Obama 2' marked a bumper day for hotels. Obama 2 created less hysteria, yet still resulted in 26% higher revenue for the Washington DC hotel market in January 2013, than the same month the year before. Similarly, the Superbowl in San Francisco this year boosted local hotel revenue by 31%.
While these compression events certainly help, hotel share prices overall have suffered after reaching a peak in early 2015. Will a 'Clinton 1' or a 'Trump 1' (or is it a 'Clinton 3'?) be enough to give the industry a much-needed boost?
In this latest post, we visit the capital to consider the impact of a US election result on the city’s hotels.
A shifting electoral landscape
As the presidential race intensifies, demographic and technological shifts are increasingly relevant to the campaign strategies of Clinton and Trump.
Technology takes centre stage as candidates trade insults over Twitter, crowd-source campaign funding and attempt to drive Google Trends. The views of millennial voters are more widely shared than ever, having grown into the largest US generational cohort in history, numbering 75 million voters.
Meanwhile the US is increasingly ethnically diverse and living longer. The resulting societal groups think and vote differently and are keenly targeted by each candidate.
How does this translate to the hotel industry?
We expect these structural changes to have a significant impact on the hotel industry in the long term. The rapid growth of online travel agents and review sites such as booking.com and tripadvisor.com are increasing pricing transparency and choice for tech-savvy consumers. This brings a more competitive environment but does put pressure on profit margins for hoteliers.
Will new supply take the steam out of the hotel industry’s big pay day?
The combination of short-term rentals with the mobile sharing-economy is creating new business models such as Airbnb, a form of 'shadow supply'. Increasing competition is coinciding with slowing US corporate profits and business traveller demand, prompting hotel investors to rethink growth assumptions.
Hotel operators have the greatest ability to raise rates when city-wide compression events take place, where demand far exceeds available supply. The Real Estate Investment Trust (REIT) LaSalle Hotel Properties estimates that Obama 1 increased its portfolio-wide revenue growth for the year by 1%. This is despite lasting less than a week and affecting less than 25% of its portfolio.
At the time of writing, we see some of the most innovative hotels in Washington already benefitting.
- Hotel Monaco is charging 12 times the normal rate (up to $7,600 a night)
- Mason & Rook is charging nearly 15 times its normal rate, at around $3,400
Having surveyed local hotel managers during our visit we are less optimistic for this event. Not only are both candidates less popular than Obama was in 2009, but the hotel market has grown steadily since.
According to Smith Travel Research, Washington DC provided 3.3 million hotel room nights in the 12 months to the end of June 2016, up around 1% on the prior year. Local market players estimate that the future supply growth could accelerate to 4% per annum, causing some concern should demand grow at a slower rate.
In addition they estimate that up to 10,000 private residential beds could be listed for short-term rental on sites such as Airbnb, roughly equivalent to one-third of the existing hotel stock.
Overall, we believe hotels will need to tailor their revenue management strategies to make the most of January 2017’s pay day, with leaner months lying ahead.
Important Information: The views and opinions contained herein are those of Schroders' Global Cities Team, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. The data provider and issuer of the document shall have no liability in connection with the third party data. The Prospectus and/or schroders.com contains additional disclaimers which apply to third party data. Regions/sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this document include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.