PwC US’s updated lodging forecast expects the focus to shift from demand growth to average daily rate (ADR) gains, as pricing power returns against the backdrop of an earlier-than-expected lodging recovery.
Despite a slower pace of economic recovery in 2010, growth in occupied rooms has remained brisk and recent performance metrics indicate that demand has recovered to 2007 levels. After reaching a trough at a similar time as the economy in mid-2009, lodging demand has rebounded more quickly, and average demand levels in 2010 are estimated to be only 1.1 percent behind 2007. This recent demand growth has set the stage for the next phase of recovery, which is expected to be driven by solid room rate growth.
PwC’s updated quarterly lodging forecast is based on an updated macroeconomic forecast from Macroeconomic Advisers, LLC, which reflects a recovery that strengthens during 2011.
The current slowdown in hotel construction activity is a key element in the foundation for recovery in operating performance of existing hotels. The pace of new construction starts fell from 133,000 rooms in 2008, to 48,000 in 2009, and is on pace to total 29,300 in 2010. As a result, lodging supply is expected to increase 2.0 percent and 0.4 percent in 2010 and 2011, respectively. With growing demand and decelerating supply growth, occupancy rates are expected to increase 5.7 percent and 2.5 percent in 2010 and 2011, respectively. As demand and occupancy levels increase, hotels are expected to post higher room rates in 2011, in part due to the return of the business traveler and decreased reliance on more price-sensitive booking channels. As a result, ADR is expected to increase 4.8 percent in 2011, resulting in RevPAR growth of 7.4 percent, the highest since 2006.
“Despite a weak national economy, occupancy rates continue to recover in many US markets, preparing hotels for an uplift in average room rates during 2011. The degree of increases in room rates will vary dramatically from market to market,” said Scott D. Berman, principal and US industry leader, hospitality & leisure, PwC.
A full copy of PricewaterhouseCoopers’ US Lodging Forecast can be accessed by visiting: http://www.pwc.com/us/en/asset-management/hospitality-leisure/publications/index.jhtml
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