Hotel Headlines – Week of January 27, 2013

February 2, 2013

Four-Year Boom Expected for the US Hotel Industry

At this year’s Americas Lodging Investment Summit, the world’s largest hotel investment conference optimism was high as the U.S. hotel industry continues to flourish.  Many in the industry say they expect the good times to keep rolling for a few more years until supply catches up with demand.

98 percent of delegates at this year’s conference, including investors and hotel-service providers, said they expect positive revenue per available room growth in 2013

Mark Woodworth, president of hotel property-research firm PKF Hospitality believes this is the best time that we’ve seen in the industry, in terms of fundamentals being solid, going back to the mid-1970’s.

Key fundamentals, including demand growth, average daily rate growth, revenue growth and profit growth are several times their long-run averages, while new construction is “well below average.

See CNBC video on ALIS conference HERE

STR releases updated 2013, 2014 forecasts

According to the most recent forecast from Smith Travel Research, the U.S. hotel industry expects to see performance increases during 2013 and 2014. Overall, in 2013 occupancy is expected to rise 0.8 percent to 61.9 percent, average daily rate is forecasted to increase 4.9 percent to $111.27 and revenue per available room is expected to grow 5.7 percent to $68.86.

The forecasted ADR would surpass the 2008 peak level ($107.41), and the projected RevPAR would surpass the 2007 peak level ($65.56).

Supply in 2013 is forecasted to rise 1.0 percent, and demand is projected to be up 1.8 percent.

The forecast for 2014 includes:

  • a 1.3-percent increase in occupancy to 62.7 percent;
  • a 4.6-percent rise in ADR to $116.43;
  • and a 6.0-percent growth in RevPAR to $72.97.

In 2014, supply (+1.5 percent) and demand (+2.8 percent) are both projected to increase.

Posted by Scott R. Lodde

Headlines – Week of December 16, 2012

December 21, 2012

PKF: U.S. hotel market set to prosper through 2016

Another positive outlook for the hotel can this week when PKF Hospitality Research stated the U.S. lodging industry will see perpetual gains in demand, occupancy, ADR and RevPAR through 2016.

RevPAR for U.S. hotels is projected to grow at a compound annual average rate of 7.2% for the next four years … more than double the historical long-run average.

The report cautions, however, that the U.S. federal government’s ongoing “fiscal cliff” budget standoff is clouding what would otherwise be a sunny outlook for 2013.

Without falling off the fiscal cliff, the PKF believes RevPAR will increase by 6.0% in 2013.  However, if budget negotiations fail, it can be assumed that RevPAR growth will be well below that.  Under almost every economic scenario, 2014 is shaping up to be a year of strong gains in both occupancy and ADR.  

By year-end 2013, PKF-HR is forecasting the national occupancy rate to be 62.1%. While this is below the pre-recession peak of 63.1%, it does surpass the long-run average occupancy level of 61.9% per STR.

Much of the gains in ADR will be experienced by properties in the luxury, upper-upscale and upscale chain segments. Occupancy levels for these properties are projected to remain above 70% through 2016.

Roughly 85% of future RevPAR growth will be driven by increases in ADR.

PKF-HR is forecasting net operating income to grow at a compound annual rate of 10.0% through 2016.

Expectations High for Existing-Home Sales and Pricing

According to the National Association of Realtors (NAR), November, existing-home sales rose 5.9 percent from October to an annual rate of 5.04 million, the highest level since November 2009.

In addition, the median price of an existing-single family home rose to $180,600 in November, up 10.1 percent from November 2011.

In a related report from J.P. Morgan Chase & Co., the firm expects U.S. home prices to rise 3.4% in its base-case estimate and up to 9.7% in its most bullish scenario of economic growth.

Standard & Poor’s said it expects a 5% rise in 2013.

According to a monthly economic outlook released by Fannie Mae’s Economic & Strategic Research Group, despite lower expectations for the economy’s progress as a whole this quarter, home sale and price trends suggest housing finally represents “a tailwind to growth,”

Home prices have seen strengthening year-over-year gains over the last several months and prices are expected to end the year on a positive note for the first time in six years according to Fannie Mae economists.

They projected the median price of an existing home would rise 4.2 percent on an annual basis in 2012, to $173,000. They expected the median price of a new home to increase 4 percent, to $236,000. Fannie Mae is projecting that median prices of both new and existing homes will rise an additional 1.7 percent in 2013.

Existing-home sales, new-home sales and single-family housing starts are expected to see substantial increases from last year. Fannie Mae predicts each will rise 9.6 percent, 19.5 percent and 25.7 percent, respectively, in 2012 compared to 2011. They expect further improvement next year with increases of 6.4 percent, 21.9 percent and 22.4 percent, respectively.

Posted by Scott R. Lodde

Headlines – Week of December 9, 2012

December 13, 2012

STR Year-End 2012 Forecast for US Hotels

Smith Travel Research (STR) released its preliminary year-end data.  STR projects that the U.S. hotel industry will finish 2012 by posting strong performances in all major metrics.

Based on STR data through November, preliminary 2012 year-end results for the U.S. hotel industry include:

  • ·         Increases in supply (0.5 percent) and demand (2.8 percent);
  • ·         a 2.3-percent increase in occupancy to 61.3 percent;
  • ·         a 4.3-percent rise in average daily rate to US$106.17; and
  • ·         a 6.6-percent jump in revenue per available room to $65.08.

Record demand along with limited supply growth, has fueled the increases in the other measurement categories.

STR’s latest forecast was issued at its Hotel Data Conference in September and included a 0.5-percent increase in supply, a 2.6-percent increase in demand, a 2.1-percent increase in occupancy, a 4.4-percent increase in ADR and a 6.5-percent increase in RevPAR.

 

Homes Fuel Economy

Once considered a drag on growth, real estate has reversed course and is now a key economic driver at a time when other sectors are slowing.

Macroeconomic Advisers projects the economy will grow at a 1.4% annual rate in the fourth quarter, with housing contributing 0.4 percentage point. IHS Global Insight is projecting a 1% growth rate, with housing contributing 0.53 of a percentage point—the largest contribution since 2005.

Home prices rose 3.6% in September from a year ago, according to a recent S&P/Case-Shiller National Index. Prices are up 7% through the first nine months of 2012, which is the strongest rise since 2005 and puts prices on a trajectory to beat even the most optimistic forecasts from earlier this year. The gains also are broad-based, with the 20 cities tracked by the Case-Shiller index—except Chicago and New York—showing year-over-year gains.

Rising home values make homeowners feel better about their finances. A recent index of confidence by the Conference Board rose to 73.7 in November, the highest level since February 2008.

While rising prices now are driving the housing market forward, that couldn’t have happened without a painful cycle of losses. Lower prices and rock-bottom interest rates have boosted affordability. The average monthly mortgage payment on a median-price home in October, assuming a 10% down payment, fell to $720 at prevailing rates, down from nearly $1,270 at the end of 2005.

 

Highlights from the NAR 2012 Profile of Home Buyers and Sellers

The annual survey conducted by the NATIONAL ASSOCIATION OF REALTORS® of recent home buyers and sellers provides insight into detailed information about their experiences

Here you can find highlights from the latest report.

  • 39 percent of recent home buyers were first-time buyers, a slight rise from 2011, but closer to the historical norm of 40 percent.
  • 65 percent of recent home buyers were married couples—the highest share since 2001. Conversely there was the lowest share of single buyers since 2001.
  • For 52 percent of home buyers, the first step in the home-buying process was taken online.
  • The typical home buyer searched for 12 weeks and viewed 10 homes—a decline from 12 homes in prior year, which speaks to the tightened inventory in many areas.
  • 89 percent of buyers purchased their home through a real estate agent or broker, similar to last year’s report—a share that steadily increased from 69 percent in 2001.
  • 88 percent of sellers were assisted by a real estate agent when selling their home.
  • Only 9 percent of recent sellers sold via FSBO sale. Among FSBO sellers who did not know the buyer prior to the sale—20 percent sold via FSBO because the buyer directly contacted them.
  • Approximately two-thirds of home sellers only contacted one agent before selecting the one to assist with their home sale.

 

Posted by Scott R. Lodde

Rushmore: Lessons Learned from Past Recessions

November 6, 2012

According to a recent article written by Steve Rushmore at Hospitality Valuation Services (HVS), the U.S. hotel industry is going through a period of uncertainty as a result of the upcoming presidential election which could have a huge impact on taxes, small businesses, operating costs, disposable income and governmental regulations.

As a result, many hotel developers, investors and lenders have been on the sidelines waiting for a clear direction before they start making decisions on where to deploy their capital.

In the article, Rushmore provides an intriguing look back in time when there was a similar period of economic malaise for a look at what stimulants contributed to the recovery and growth of the hotel sector.

He points to the decade of the 1980s had many of the same economic elements that the industry experienced over the past five years – a massive recession followed by slow recovery.

The following table shows Daily Hotel Room Night Demand for the U.S. Hotel Industry each year from 1979 to 1990. The table also shows the year-to-year numerical change in room night demand as well as the percentage change. It identifies the years the U.S. experienced a recession.

Rushmore points to the recession of the 1980s which was one of the longest recessionary periods in U.S. history.  This recession was the result of very tight monetary policy that was necessary to control the rampant inflation during the late 1970s as well as the energy crisis of 1979.

The table shows hotel demand started to drop in 1980 and continued for four years to 1983. The 6.5% decline in hotel demand was the largest since the Great Depression. The high level of inflation caused interest rates to peak at 17%, making it virtually impossible for anyone to obtain a mortgage. This devastated the real estate industry with new construction and transfers coming to a virtual halt.

To help us out of that recession, Congress focused their attention on stimulating the recovery in this segment to move the U.S. economy out of recession and the hotel industry benefited by the recovery as hotel demand started to increase in 1984 and reached the 1979 level in four years.

Hotel demand continued to escalate until 1990 when the economy went into another recession.

The tax shelters of the 1980s and the deregulation of the savings and loan industry were the stimulus Congress used to get the real estate sector growing again and hotels were perfect candidates due to the large amount of personal property that could be written off quickly. Tax shelters allowed hotel developers and investors to rapidly depreciate their properties and obtain investment tax credits, which effectively eliminated the need to put equity capital in the property. In addition, hotels could be totally financed with a mortgage (including the personal property).

The deregulation of savings and loan banks allowed them to start making commercial mortgages. This change in rules produced huge amounts of mortgage capital eager to get the higher interest rates from commercial lending.

As Rushmore points out, S&Ls, who had no experience with commercial lending, were literally throwing money at hotel developers to finance their projects.

Although the facts and circumstances are different than those of 30 years ago, the solution is similar since the main roadblock to new hotel development and transactions is the availability of new financing.

The article points out that the huge increase in new government regulations following the collapse of the financial industry has crippled banks and other lenders’ ability to make real estate loans.  Since lenders fear government regulators will increase their reserve requirements, label their loans as non-conforming they have stopped lending.

As with the deregulation of the S&L industry, Rushmore is calling on Congress to loosen the Draconian banking regulations so we can get back to a normal lending environment.

 

Posted by Scott R. Lodde

U.S. Hotel Value Growth through 2016

October 4, 2012

HVS – U.S. Hotel Value Growth through 2016

According to the HVS 2012 U.S. Hotel Valuation Index (HVI), U.S. hotel value growth will persist through 2016, surpassing a 2006 peak of US$100,000 per room in 2013.  

The HVI tracks hotel values in 66 individual U.S. markets and the United States as a whole, examining hotel supply, demand, occupancy and average rate trends.

Increases in occupancy, average rate and demand, along with limited supply growth are expected to yield relatively strong growth in net operating income, the report said. These dynamics, along with fewer buying opportunities, will lead to a positive per room value change in the United States in 2012.

The report notes that because of the strength of demand in the meeting and group segment, per room values for the top three U.S. convention cities; Las Vegas, New Orleans and Tampa are expected to increase most this year.

Some cities which saw a recovery earlier however, will see future values decline or slow.

Examples of limited upside growth include San Francisco and Boston, as their per room values recovered in 2010 and 2011.

RevPAR Forecasts up for Remainder of 2012

PKF Hospitality Research, PwC and STR all revised their 2012 RevPAR forecasts up for the remainder of the year compared to their mid-year forecasts.

PKF notes the main drivers continue to be favorable levels of real personal income growth.

Also noted to increase demand are travelers with increased incomes allocating more of their money to meetings and leisure travel, despite uncertainty that persists in the market.  The large degree of transient business and pent-up demand left over from the downturn is also a factor.

While RevPAR forecasts for 2012 won’t reach the 8.2-percent RevPAR growth the U.S. industry saw in 2011, the three companies are predicting increases between 6.5% – 7.2%.

Hotel demand in the last two years has been record-breaking.  Through July, the industry sold more rooms during that span than ever, almost 106,000,000.

However,  not all markets are currently benefiting from the rise in RevPAR over the past two years. The majority of gains are being found in the top 25 gateway cities and sparsely throughout secondary markets.

The experts expect more construction in 2013 as more firms get sites under control.  However, compared to historic norms construction is very low.

Posted by Scott R. Lodde

Headlines – Week of September 9, 2012

September 20, 2012

Moderate Hotel Growth Underway

According to a new report from Lodging Econometrics (LE), moderate growth in U.S. hotel pipeline metrics has been underway for a while.

In Q2 2012, hotels under construction stood at 525 projects/66,917 rooms. LE said room counts are up from the bottom of 387 projects/49,028 rooms for the fourth consecutive quarter, signaling that the industry has entered the early stages of a new real estate growth cycle.

The annualized four-quarter trend line for construction starts is up from the bottom for the sixth consecutive quarter and is at its highest level in 10 quarters. LE suggests the uptick in construction starts is due largely to the commencement of previously stalled projects in the pipeline while developers were awaiting evidence of a sustained operating recovery.

The most significant indicator of future pipeline growth is new project announcements. At 1,180 projects/147,447 rooms, the annualized four-quarter trend line is up from the previous cyclical bottom for the third consecutive quarter and is at the highest level in six quarters.

Based on current construction trends, these pipeline metrics support LE’s initial forecast for new hotel openings in 2014 of 446 projects/48,335 rooms. This is a 31% room count increase and the first substantial upturn from the bottom of 346 projects/37,200 rooms set in 2011.

While the recovery in the U.S. lodging industry has been slower than hoped for, LE expects that both ADR and RevPAR will exceed previous cycle highs in 2013.

The firm’s expects that once the election season is over, the administration will be able to build a bi-partisan political consensus to ensure that job growth policies are at the top of the nation’s agenda.

We all know that job growth is the key to improving consumer spending, which is necessary to trigger investment by the business community. That environment will spur lodging demand and move hotel development at a faster pace.

 

RevPAR forecasts up for remainder of 2012

PKF Hospitality Research, PwC and STR all recently revised their 2012 RevPAR forecasts up for the remainder of the year compared to their mid-year forecasts.

Average daily rate has been the driver behind growing revenue per available room for the last few quarters.

New data from STR and TravelClick projects RevPAR, ADR and occupancy gains for U.S. hotels over the remainder of 2012.

For 2012, STR projects a 2.1% increase in occupancy to 61.2%, an ADR gain of 4.4% to US$106.15 and a RevPAR increase of 6.5% to US$65.01.

Supply and demand are expected to end the year with increases of 0.5% and 2.6%, respectively.

TravelClick data shows committed occupancy for August to December this year is up 5.4% and ADR is up 5%, with the growth driven by the transient segment with an occupancy increase of 5.6% and an ADR increase of 5.5% in comparison to the same time last year

In 2013, STR predicts occupancy to be virtually flat with a 0.3% increase to 61.4 percent, ADR to rise 4.6 percent to US$111.01 and RevPAR to grow 4.9% to US$68.17. Supply and demand are forecast to end 2013 with increases of 0.9% and 1.2%, respectively.

 

Hotel Real Estate Boom on Miami Beach

According to a recent article in Herald Online as well as my personal observations, there’s a major real estate boom going on in Miami Beach in small to mid-size luxury hotels that are being bought, sold, managed and renovated.

According the article, in just the last few months the following activity:

  • $85 million SLS South Beach Hotel on Collins Avenue
  • Royal Palm Hotel was sold for $130 million and is being rebranded as the James Hotel
  • Gansevoort hotel was sold and renamed The Perry and is being managed by Starwood
  • Kimpton signed a contract to manage the Surfcomber Hotel which sits at a prime location at 17th and Collins Avenue
  • The Delano hotel is for sale (although its owners still want to manage it after the sale)
  • David Edelstein, the owner of the W South Beach purchased the Raleigh hotel for $55 million

According to experts in the market, this recent activity is and indicator of the strength and demand of Miami as a destination.

Other factors contributing to the demand includes:

  1. The areas consistent placement in the top ten of varied Best Of lists,
  2. The continued allure in a competitive vacation market
  3. Ongoing infrastructure updates
  4. Sophisticated cultural, gastronomic and social options and
  5. Great weather

Renovation projects currently underway include:

  • B Hotel (the former Continental)
  • Saxony hotel
  • The historic beachfront Seville Hotel (to be branded a Marriot Editions)
  • A number of properties are also actively courting buyers – if the price is right.
  • Other luxury properties which have opened in recent years include:
  • SLS South Beach
  • Mondrian
  • W
  • Standard
  • Setai

Other properties getting significant renovation include:

  • The Betsy
  • Surfcomber
  • Fontainebleau
  • Loews

Posted by Scott R. Lodde

2012 US hotel demand to exceed 2007

September 6, 2012

According to a new issue of Hospitality Directions, PricewaterhouseCoopers (PwC) notes that despite persistent economic headwinds and heightened uncertainty, U.S. RevPAR recovery in 2012 is projected to remain intact, with slightly stronger gains in both demand and pricing than previously anticipated.

The firm reports that the lodging recovery is continuing into the second half of 2012, and with that, it has adjusted its revenue per available room outlook to increase 7.2 percent this year, followed by 5.6 percent in 2013.

Results for the first 18 days of August show an approximately 7.2-percent increase in RevPAR.

Macroeconomic AdvisersAugust outlook expects slower economic growth in 2012 than it previously anticipated, followed by gradual improvement in 2013, with real GDP increasing 1.8% in 2012, followed by an increase of 3.0% in 2013, measured on a fourth quarter over fourth quarter basis.

With hotels reporting a solid pace of forward bookings for the balance of the year, including a greater volume of group bookings, PwC said these results indicate momentum in travel activity and set a context for hotels to price more confidently entering the second half of 2012.

Overall, PwC expects lodging demand in 2012 to increase 3.0%, which combined with still restrained supply growth of 0.5%, is anticipated to boost occupancy levels to 61.5%, the highest since 2007.

PwC anticipates hotel occupancy will increase 2.5 percent in 2012, coupled with a 4.6-percent increase in ADR. Hotels in these segments experienced the greatest decline during the recession, but have advanced quicker than hotels in other lower-end segments in rebuilding occupancy levels. PwC expects occupancy in the luxury, upper upscale and upscale segments to meet or exceed each segment’s 2007 average.

Overall, industry RevPAR is expected to recover to $65.41 in 2012, just slightly below its prior peak of $65.54 in 2007.

Full Report – PwC Hospitality Directions US Q2

Posted by Scott R. Lodde

Headlines – Week of August 19, 2012

September 3, 2012

High-End Hotel Investment Sales Getting Hot Again

According to information provided by CoStar, hotel investment sales cooled off considerably in the first half of 2012, after trading at a blistering pace last year.

However, early third-quarter transaction activity suggests that lodging sales should finish the year on a strong note.

Total volume of sold hotel transactions valued at $25 million and above was $2.5 billion in the first six months of 2012 — well below the strong $6.4 billion recorded in the first half of 2011.

Due to a handful of hotels that sold for top dollar, sales volume has already surpassed second-quarter 2012 and about equaled first-quarter figures just a month into the third quarter. The average price per key remained strong at around $233,500 at midyear.

The uptick in sales in recent weeks come as the U.S. hotel industry heads into the Labor Day weekend, traditionally one of the busiest travel and vacation periods of the year, and reflects what lodging analysts say is the continuing and growing strength in fundamentals in spite of this year’s slow economic growth and fiscal uncertainty.

Such numbers are prompting sellers to get off the sidelines. The sales activity at the high end of the market mirrors especially strong fundamentals for luxury properties. While hotels across the spectrum are benefiting from the recovery, those in the higher-priced tiers are expected to see the strongest gains, according to PwC.

Occupancy levels at hotels in the luxury, upper-upscale and upscale segments are expected to meet or exceed each segment’s 2007 peak. Hotels in the lower-priced segments have not experienced as solid of a recovery in occupancy but are still expected to realize increased room rates as demand gradually strengthens.

Starwood has pursued an “asset-light” strategy in recent years, opting to focus on fee income from hotel operations and management. During a recent call with investors, the company laid out plans to unlock $4 billion to $5 billion in cash by selling its hotels and Bal Harbour condominium residences.

Starwood continues to bring their own hotels to market, either one at a time or all at once, depending on demand. Sources from Starwood state that their strategy is to be left with a global high-end fee business. The fee business is built on long-term contracts, low variable costs, but absent the capital needs and volatility of owned real estate.

Florida Housing Market Continues Positive Track

Pending sales, closed sales and median prices rose, while the inventory of homes and condos for sale dropped in Florida’s housing market in July, according to the latest housing data released by Florida Realtors.

According to the Realtor association, Florida’s real estate recovery is on solid ground, and since May 2011, pending sales have increased every month for both existing single-family homes and for townhome-condo properties.

In July, pending sales were up more than 42 percent for existing single-family homes and 26 percent for townhouse-condo units, compared to a year ago. Home prices are on the rise in many markets, while the inventory of homes for sale is down. Florida’s housing market is growing stronger and stronger.

Pending sales refer to contracts that are signed but not yet completed or closed; closed sales typically occur 30 to 90 days after sales contracts are written.

Statewide closed sales of existing single-family homes totaled 17,420 in July, up 9.8 percent compared to the year-ago figure, according to data from Florida Realtors Industry Data and Analysis department and vendor partner 10K Research and Marketing. The statewide median sales price for single-family existing homes last month was $148,000, up 7.8 percent from July 2011.

According to the National Association of Realtors® (NAR), the national median sales price for existing single-family homes in June 2012 was $190,100, up 8 percent from the previous year. In California, the statewide median sales price for single-family existing homes in June was $320,540; in Massachusetts, it was $325,000; in Maryland, it was $268,910; and in New York, it was $220,000.

Looking at Florida’s year-to-year comparison for sales of townhomes/condos, a total of 7,779 units sold statewide last month, up 2.8 percent from those sold in July 2011. The statewide median for townhome-condo properties was $102,000, up 10.9 percent over the previous year. NAR reported the national median existing condo price in June 2012 was $183,200.

Last month, the inventory for single-family homes stood at a 5.3-months’ supply; inventory for townhome-condo properties was at a 5.4-months’ supply, according to Florida Realtors. Industry analysts note that 5.5-months’ supply symbolizes a market balanced between buyers and sellers.

Posted by Scott R. Lodde

Waikiki Edition and Turnberry Isle Management Settlements

July 17, 2012

In one of the most contentious hotel management contract disputes in recent memory, Marriott International and the owner of The Modern Honolulu hotel in Waikiki have reached a settlement in their court case over the property, which was formerly the Waikiki Edition. Marriott was ousted as the manager of the Edition on August 28, 2011.   

The amount of the payment was not disclosed; however, the bankruptcy court judge had ruled in early June that a reasonable estimate of how much Marriott should be paid for lost management fees and expenses was $20.7 million. Marriott had sought $72 million for what it contended was an unjust breaking of a 30-year management contract. 

Also settled recently was the little-publicized takeover of the Turnberry Isle Resort & Spa in the Miami where the owner terminated a “no-cut” hotel management contract with more than 50 years left to run and expelled Fairmont from the property.

Extremely interesting is the fact that unbeknownst to each other and separated by 6,000 miles and a 6 hour time difference, the owners of the Edition Waikiki and the Turnberry Isle Resort both took both control of their hotels at virtually the same moment on Sunday morning, August 28, 2011 — 2 am Honolulu time which is 8:00 am Miami time.

According to Jim Butler of JMBM Global Hospitality Group, the firm that represented the owners of Turnberry Isle, there are many important parts to the Turnberry opinion, but one major theme is summed up in this statement by the Court:

“The notion of requiring a property owner to be forcibly partnered with an operator it does not want to manage its property is inherently problematic and provides support for the general rule that a principal usually has the unrestricted power to revoke an agency.”

According to Butler, the 71-page opinion in the Turnberry decision is destined to become one of the most cited cases in the area of hotel management agreements. Although infallibly grounded on legal precedent — going back hundreds of years in English common law, a landmark U.S. Supreme Court case by Chief Justice John Marshall, and a well-known line of hotel cases – Butler believes it is one of the best-written, most thoroughly researched and comprehensive decisions in the area of hotel management law.

Posted by Scott R. Lodde

 

 

 

PKF Lodging Forecast Remains Strong

July 5, 2012

According to the recently released June 2012 edition of Hotel Horizons®, PKF Hospitality Research, LLC (PKF-HR) is projecting RevPAR for U.S. hotels will increase by 5.8 percent in 2012, and another 6.6 percent in 2013. These forecasts are identical to the RevPAR forecasts presented in the March 2012 edition of Hotel Horizons.

PKF-HR affirms its strong forecasts of RevPAR growth for the nation’s lodging industry despite news that will likely influence the short-term economic performance of the U.S. economy.

Sluggish job growth and economic chaos in Europe have been in the news for a while, and despite these conditions, the performance of the U.S. lodging market during the first quarter of 2012 was just as strong as their original forecast.

The 2012 annual RevPAR growth forecast of 5.8 percent is the result of a projected 1.6 percent increase in occupancy and a 4.1 percent gain in average daily rate (ADR).

PKF-HR is forecasting average quarterly RevPAR gains of 4.9 percent during the second half of 2012. This is less than the estimated 6.9 percent RevPAR growth enjoyed during the first six months of the year.

One of many economic measures monitored by PKF-HR is The Conference Board’s Leading Economic Index® (LEI).  The firm believes there is a six to eight month lag between changes in the LEI and movements in lodging demand. The decline in the LEI observed during the last quarter of 2011 suggested a softening in the demand for hotel rooms during the third quarter of 2012. However, the LEI bounced back during the first half of 2012, thus perpetuating our optimism for 2013.

PKF-HR is now projecting more robust ADR growth in future years.  From 2014 through 2016, the firm has increased their annual ADR growth rates by an average of 150 basis points. The solid growth in lodging demand exhibited in 2010 and 2011, combined with limited increases in hotel supply, will serve as the base for above long-run average occupancy levels from 2013 and beyond. As a result, hotel managers should be able to leverage these market conditions and raise room rates.

In 2012, 29 of the 50 Hotel Horizons® markets are expected to achieve occupancy levels above their long-run average. With demand growth forecast to continue to rise greater than supply in most cities over the next two years, 42 of the 50 markets are projected to exceed their long-run average occupancy levels by 2014.

Previous research conducted by PKF-HR has found that profit growth is greatest for hotels when revenue gains are driven by increases in ADR.

Luxury and upper-upscale properties achieved the greatest gains in RevPAR during the initial stages of the industry recovery; however, going forward, PKF-HR believes the greatest gains in annual performance will shift to the more moderate-priced segments.

In addition to mid-priced properties, hotel markets in the mid-section of the nation are starting to participate in the recovery. The cities of Nashville, Houston, New Orleans and Salt Lake City are forecast to experience the greatest gains in demand in 2012. The early stages of the U.S. lodging industry recovery favored the large gateway markets. The return of demand to cities in the nation’s midsection is a sign that the recovery is expanding beyond the Atlantic and Pacific coasts.

Posted by Scott R. Lodde

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