On tour with Trump and Clinton: what the US election means for Washington DC hoteliers
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.
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