Hotel Forecast Turns Positive

January 6, 2011

The big four in hotel consulting turned very bullish in their forecast for the hospitality industry as 2010 progressed.  As the year ended, PricewaterhouseCoopers (PwC), Colliers PKF Hospitality Research (PKF), Smith Travel Research (STR) and Hospitality Valuation Services (HVS) all came out with forecasts for 2011 and beyond.

All four firms predict 2010 will end with positive occupancy growth (5.3% to 5.7%).  With the low levels of supply growth anticipated through 2012, two of the firms predict occupancy to rise above the 60% mark in 2012 (PwC and STR did not provide a forecast for 2012).   

As a result, revenue per available room (RevPAR) will grow 4.3% to 5.7% for the first time since 2007.

2010 ended better than anyone expected as the year began and as a result the firms forecast ADR increases for 2011 between 3.9% and 4.8%.

The recovery in lodging demand however is only part of the story. Since 2007, 3,300 new hotels have opened, and PwC estimates that room inventory in 2010 will average 7.7% ahead of 2007 levels. Occupancy rates in 2010 are 8.2% below 2007 levels, and average daily rates are 6.0% below, resulting in RevPAR 13.7% below 2007 highs according to their numbers.

A return of business travel and some group activity have contributed to the positive trends seen in 2010 as the industry decreased reliance on more price-sensitive booking channels. In 2011, continuation of such shifts in the mix of business, as well as increases in negotiated rates and moderate gains in group demand, are expected to drive the higher rates that are predicted.

ADR increases, combined with higher occupancy levels, are expected to increase RevPAR 5.5% to 7.4%, the largest annual gain since 2006.

The other major factor affecting hotel fundamentals is the slowdown in construction.  According to the latest (November 2010) STR/McGraw Hill Construction Dodge Pipeline Report, total active U.S. hotel development pipeline comprises 3,174 projects totaling 330,920 guestrooms, a 20.7% decline since November 2009.

The following chart is the consensus of predictions from the four firms:

Posted by Scott R. Lodde

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