Numerous members of our Hospitality and Leisure team from, among other locations, Los Angeles, San Francisco, Chicago, New York, Atlanta and Miami, recently attended the Americas Lodging Investment Summit (ALIS) in Los Angeles. In addition to excellent networking opportunities, ALIS features an extensive offering of seminars and panels by hotel industry experts that provide valuable insights into important trends for the year ahead. For those who were unable to attend, we want to share some key observations and themes. For those of you who did attend, we encourage you to reach out to the authors to share your observations as well.
Sustained growth and market drivers. Industry experts forecast steady but modest growth of new construction and transactions involving existing product for 2019. Market values appear to be holding steady due to a combination of available capital and accessible debt markets, although debt yields have moved up modestly over the past few months. While REIT transactions have decreased, private equity groups show increased activity and are driving the market. Over the next year, experts anticipate modest but continued increases in cap rates.
Cycle timing. The hospitality market has enjoyed more than a decade of steady growth. While rumblings of an economic slowdown have some questioning how long the upward momentum will be sustained, most economic indicators suggest continuing growth. For example, consumer spending is anticipated to remain strong in 2019, and ADR and RevPAR forecasts for 2019 both exceed 2 percent. Hotel investors continue to actively, although cautiously, pursue transactions.
Cybersecurity and privacy issues. Recent high-profile data breaches have resulted in increased focus on cybersecurity and privacy concerns. Regulatory bodies have also turned their attention to this area and hoteliers now face compliance with new legal regimes. The EU's General Data Protection Regulation, a major data protection and privacy law, took effect in May last year, and it is widely anticipated that the US will enact data privacy legislation at the federal level this year. Cyber-liability insurance coverage has quickly become a popular risk mitigation tool, although parties need to be careful to avoid gaps in coverage. Similarly, the allocation of potential liability among hotel owners, operators and brands for disclosure of private information faces increased scrutiny.
Labor. The hotel industry employs 9 million people in the US and has 900,000 job openings. Several of the panelists discussed the need for the industry to do a better job of marketing the advantages of working in the hotel industry, including the opportunities for career progression.
Home sharing. There was less focus on the home-sharing industry than in past conferences. Many experts believe that this industry largely is attracting different types of travelers than those who would stay in hotels, and the consensus seemed to be that the hotel industry and the impact of the home-sharing industry can successfully coexist. Conference panelists were more concerned with companies who rent out blocks of rooms or entire buildings than individual families renting out their homes.
Opportunity zones. The new opportunity zone program has piqued the interest of the hospitality market. Several private equity firms have raised substantial opportunity zone funds. However, market participants are still exploring how to take advantage of the substantial tax incentives offered by investing in these zones. Experts anticipate that, in the short term, this legislation will drive increased investment in existing hotel product. New hotel product will likely follow the development of office space and other creators of demand for lodging within urban areas.
A new accolade
In related news, we are delighted to report that DLA Piper has been selected by Law360 as the Hospitality Practice Group of the Year for 2018. This is the second time in the past three years that our team has been honored with this award. Find out more here.
Learn more about the trends discussed in this alert by contacting Sandra Y. Kellman, global co-chair of our Hospitality and Leisure practice.