PKF Projects Unprecedented Occupancy Growth

March 20, 2012

According to the March 2012 edition of Hotel Horizons®, PKF Hospitality Research, LLC (PKF-HR) the U.S. lodging industry’s fundamentals are projected to continue to be positive through 2014.

The firm forecasts that rooms revenue for U.S. hotels will rise 5.8 percent in 2012, the result of a 1.6 percent increase in occupancy and a 4.1 percent gain in average daily room rates.

Ever since the first quarter of 2010, growth in lodging demand has greatly exceeded the supply increase and the industry has seen six straight quarters of ADR growth.

According to Smith Travel Research (STR), U.S. hotels rented more guest rooms in 2011 than ever before. On a local level, PKF-HR observed new records in metro-level lodging demand in 30 of the 50 markets covered by its Hotel Horizons® forecast reports.

The positive impact of increased demand is amplified by the limited amount of new hotel supply that is expected to be built over the next five years.

According STR, the average annual change in the nation’s lodging supply from 1988 through 2011 was 2.1 percent. PKF-HR anticipates that new supply growth will remain below that level through 2016, less than 2.0 percent annually. With supply suppressed, PKF-HR forecasts annual occupancy gains through 2015. Add this to the annual occupancy increases observed in 2010 and 2011, and the industry will experience an unprecedented six-year run of occupancy growth.

STR forecasts profits to continue to grow at an average annual rate of 10.3 percent though 2014, which is a substantial increase over the long-run average of 3.9 percent.

Hotels in the upper-tier chain-scale segments (luxury, upper-upscale, and upscale) have enjoyed the greatest gains in RevPAR since the depths of the 2009 recession. Hotels in the lower-tier categories (upper-midscale, midscale, and economy) also have achieved increases in RevPAR during this same time period, but at a slower pace.

As a result, the firm is forecasting that the national occupancy level for hotels in each of the upper-tier chain-scales will exceed 70 percent through 2016.

Further enhancing the prospects for lower-tier hotels is a shift in the economic outlook. Moody’s Analytics, the basis for PKF-HR”s economic forecasts, projects continued increases in employment that eventually will benefit midscale and economy hotels.

The situation with Iran is the only foreseeable obstacle to PKF-HR”s optimistic forecasts and military hostilities are a greater concern because of the negative impact on the availability of oil and on international travel. Limits on both the availability of gas at local pumps, and transportation system disruptions impact the psyche of travelers beyond gas prices.

PKF-HR”s forecast is based upon Moody’s January 2012 economic forecast, which assumes no disruption to the supply of oil from the Middle East and that the price of oil will remain below $110 a barrel throughout 2012.

PKF believes that US hoteliers have never enjoyed such an extended period of favorable market conditions. The firm believes that we are in the midst of a six-year run during which lodging demand will outpace supply, hotel revenues will increase a cumulative 43.7 percent, and unit-level net operating income will rise 83.2 percent.

Posted by Scott R. Lodde

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