Monthly Archives: March 2013

I’ve been overwhelmed by the positive industry outlook from the experts at this year’s Hunter Conference.  Nearly everything I hear from the industry’s top analysts confirms what I’ve been telling investors and bankers for the past 18 months.

Jan Freitag, Senior VP of STR, said they’re seeing 5-7% RevPAR (Revenue Per Available Room) growth continuing for the next few years.  Two thirds of that growth is driven by ADR (rate) growth.  The last two hotel cycles lasted 65 and 112 months, so is that is an indication of the duration of this cycle, we still have a few years to go.  Regarding Chain Scales, the Upscale and Upper Midscale segments will experience about 1.5% supply growth and 4.5% demand growth; this dynamic will make these segments the fastest-growing in the U.S. in terms of RevPAR.

Tim Hart, EVP of TravelClick, said that their data show through early 2014 the U.S. hotel industry  will be about 2% ahead of 2012 occupancy.   Both business and leisure occupancy are trending up, at 2.8% and 2.4% respectively.  Rate growth has been consistent, led by the leisure segment, where increasingly fewer discounts are becoming available.

R. Mark Woodworth, President of PKF Hospitality, said that they’ve found the Index of Leading Economic Indicators correlates strongly with hotel demand.   Both are up right now.  He says that industry fundamentals are now more solid than they have been for the past 30 years.  Demand growth is running two times the long-run average, and it is driving RevPAR growth at 2.5 times the long-run average.

Woodworth summarized his forecast with, “The NOI forecast is for profit growth well above the long-run average, virtually as far out as we can see.  We have record demand levels across the industry.”  He tempered that sweeping observation by saying that some markets will see negative demand this year, either through the opening of a new, large competitor or because ADR has gotten out of line, driving guests to push back and either cancel trips or stay farther away.

I’ll have more from the conference later.  The best way to summarize what I’m hearing is that this is a GREAT time to develop hotels.

By Dave Hogg, reporting from the Marriott Marquis, Atlanta, GA

(Adapted from an article By Claudette Covey  in Travel Pulse on March 12, 2013)

U.S. hotels will continue to achieve strong gains in both revenue and profits in 2013, according to the recently released March 2013 edition of PKF Hospitality Research’s(PKF-HR) Hotel Horizons. The hotel industry, in fact, will enjoy a 6.1 percent increase in revenue per available room (RevPAR) this year, along with a 10.2 percent boost on the bottom-line net operating income.

R. Mark Woodworth, president of PKF-HR, said, “Our forecast of a 1.8 percent increase in demand for 2013 is somewhat muted compared to the 3 percent increase recorded by Smith Travel Research (STR) in 2012.  However, when you combine the 1.8 percent growth in lodging demand with a projected increase in supply of just 0.8 percent, occupancy levels will rise to 62 percent. This will take the U.S. lodging industry past the long-run average occupancy level of 61.9 percent, a significant milestone.”

The 6.1 percent pace of RevPAR growth forecast for 2013 is less than the 6.8 percent increase achieved in 2012. However, the 2013 growth rate is more than double the long-run average of 2.9 percent.

Also, there is good news when looking at RevPAR. PKF-HR is forecasting the average occupancy rate for U.S. hotels to increase by 1 percent in 2013, while average daily rate (ADR)is expected to rise by 5 percent. The $111.40 national ADR level projected for 2013 will be greater than the pre-recession peak of $107.42 achieved in 2008 in nominal terms.

“In several segments and cities, hotels are at the point when it may be more profitable to sacrifice a few points of occupancy in favor of raising room rates,” said Woodworth. “Occupancy rates for luxury, upper-upscale, and upscale hotels are forecast to be in excess of 70 percent from 2013 through 2017, and 15 of the 50 major U.S. markets that we track have already reached their pre-recession peak levels of occupancy. Lofty occupancy levels limit the potential for demand growth, but the scarcity of available rooms provides management with the leverage needed to increase prices.”

Another benefit of raising room rates is the positive impact on hotel profits. After the 5 percent growth in ADR forecast for 2013, PKF-HR is projecting average room rates to grow at an even greater rate through 2016. “We are in the middle of a five-year period where industry fundamentals are extremely solid: supply growth will be below average for the foreseeable future, which will lead to revenue and profit growth well in excess of the norm,” Woodworth said.

After slowing down in 2013, the pace of revenue growth for U.S. hotels is expected to accelerate dramatically in 2014. PKF-HR is forecasting RevPAR for the U.S. lodging industry to increase by 8.4 percent in 2014, the greatest annual gain in RevPAR since 2005. The RevPAR growth will be the result of a combination of a 2.1 percent increase in occupancy and a 6.2 percent rise in ADR.

Looking beyond 2014, the optimistic outlook continues. New hotel development is expected to pick up and surpass 2 percent in 2015. However, based on Moody’s economic outlook, demand growth should continue at a level sufficient enough to maintain occupancy levels above 63 percent. Room rates will grow greater than 5 percent through 2016.

“The robust pace of the recovery will slow down a little in 2013, but it is important to remember that the industry is still growing despite the economic headlines. We continue to believe that this is a great time to invest in the U.S. lodging industry,” Woodworth said.