Chicago Hospitality Sector Roundtable

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We surveyed Hospitality Sector leaders in the Chicago, Illinois, metro area and the greater Midwest and invited these individuals to a roundtable on 19 October 2016 to discuss the survey results and industry trends.

Our survey and discussions focused on the economy, transactions, capital markets, brands, technology, millennials and the trends affecting the broader US hotel market.

Discussion points to consider

The economy - More than half of the survey participants believe we are at the peak of the cycle, while the remaining 46% believe the peak is still one to two years away. The consensus was that while the market is slowing down, there still are pockets with strong fundamentals that are market specific.

Transactions - Survey respondents feel confident that 2017 will be better than 2016 for transactions with 36% saying they plan to acquire, compared with only 8% in 2016. Market participants commented that owners have been holding properties as RevPAR growth accelerated between 2015 and 2016. As RevPAR growth slows in many markets, sellers are more willing to market their properties at a price that is attractive to buyers.

EY - Investment strategy in 2016 and 2017

 

Capital markets - Market participants expressed little change in their strategy to finance hotel transactions during the upcoming six months. Given that most respondents believe the market is at or near the top of the cycle, it is not surprising that we have seen a slight uptick in deals planned using 50% debt and 50% equity, compared with 70% debt and 30% equity during the past six months.

Brands - The primary customer focus in the hospitality industry is the millennial segment, as reflected in our survey results. According to research performed by The Center for Generational Kinetics, a consulting firm focusing on issues of millennial consumers, millennials are on pace to outspend baby boomers on hospitality expenditures by 2017, with expectations that millennials will dominate purchases in the travel industry by 2020. As brands compete for revenue from this customer class, it is essential to tailor development toward the details millennials value: customized experiences, digital convenience and attention to design.

Technology - None of the respondents felt that the industry has taken all of the necessary steps to protect customer data. Cybersecurity experts believe that even the best-funded and most-prepared companies are at risk of a breach and, therefore, post-breach protocol is an ever-expanding area of focus. Market participants emphasized the need for establishing post-breach protocol in advance of any problems.

Industry focus - More than 62% of the survey respondents indicated disrupters (e.g., the sharing economy) and terrorism, or the perceived threat of terrorism, have the greatest implications to their business and represent possible roadblocks to achieving their RevPAR growth goals in 2017.

EY - Ranking key industry issues