PKF Forecasts Continued Record Levels of U.S. Hotel Demand
Atlanta, Ga. – Despite tepid economic indicators, record numbers of guests continue to occupy U.S. hotel rooms. According to the recently released September 2012 edition of Hotel Horizons, PKF Hospitality Research, LLC (PKF-HR), is forecasting that on any given night in 2012, nearly 3.0 million of the nation’s 4.8 million hotel rooms will be occupied. This is 5.6 percent greater than the levels of lodging demand accommodated in 2007, the year prior to the great industry recession. READER COMMENTS
“Lodging industry participants continue to be pleasantly surprised with the sustained levels of hotel room demand growth,” said R. Mark Woodworth, president of PKF-HR. “Bucking all apparent economic trends, lodging has been a leading industry during this sluggish economic recovery. This is different from past recovery periods when hotels typically lagged other industries.”
“Our analysis of lodging performance the past three to four years reveals that history is not always the best predictor of future behavior,” said Woodworth. “Historically, we could rely on changes in employment, income, and gross domestic product (GDP) to project the direction of lodging demand. However, during the recent recession and current recovery period, we’ve had to dig deeper to understand changes in specific components of GDP, income and employment levels by demographic segment, as well as the impact of room rate discounting. This is where one will find the drivers of the extraordinary growth in occupied hotel rooms.”
SOME MARKETS LAG
PKF-HR always cautions its clients that the hotel industry is a “street corner business.” Not all markets follow the national patterns of change in performance.
While the overall U.S. lodging industry is accommodating record levels of guests, 12 markets across the country still are renting fewer rooms than they did prior to the recession. Lagging the most in accommodated demand are the cities of Tucson, West Palm Beach and Atlanta.
The reasons why these 12 cities are lagging vary. Tucson is a market dependent on group and leisure travelers, two segments that have trailed behind the growth in transient corporate demand. Unfortunately for West Palm Beach hoteliers, the surge in travel from South America that has supported hotels in southern Florida has yet to wind its way up north. “Here in Atlanta, weak employment, especially in the outlying suburban areas, has impeded the recovery of the lower-tier properties located in those sectors of the city,” Woodworth noted.
OUTLOOK FOR 2012 AND 2013
Based on performance data through June of 2012 (provided by Smith Travel Research - STR), and Moody’s Analytics’ July 2012 domestic economic forecast, PKF-HR now is forecasting that RevPAR in the U.S. will increase by 6.7 percent in 2012.
The preceding RevPAR forecast is greater than the 5.8 percent RevPAR growth rate presented in the June 2012 edition of Hotel Horizons. “The main reason for the improved annual forecast is the stronger than expected performance of the market in the second quarter of the year. During the second quarter of 2012, STR reported that the RevPAR for U.S. hotels grew at a pace of 7.9 percent, a full two percentage points greater than our forecast of 5.9 percent. Robust demand growth was the primary reason for the superior gain in RevPAR,” Woodworth explained.
Despite the strong performance of the U.S. hotel market during the first half of 2012, PKF-HR affirms its belief that the pace of growth will moderate during the second half of the year. “We attribute this modest slowdown to less favorable prior year comparisons, and greater uncertainty about the strength of the economy,” said John B. (Jack) Corgel Ph.D., the Robert C. Baker professor of real estate at the Cornell University School of Hotel Administration and senior advisor to PKF-HR. “Because market performance is getting better at an accelerated pace this year, we have trimmed our RevPAR estimates for 2013 to 6.2 percent, slightly below our previous estimate of 6.6 percent.”
DOUBLE-DIGIT PROFIT GROWTH
Along with its improved forecast for RevPAR, PKF-HR has boosted it projections for growth in unit-level hotel profits. PKF-HR now is projecting unit-level net operating income (NOI) to increase by 12.6 percent in 2012, up from its June forecast of 9.3 percent.
Typically, hotel profit growth expectations are enhanced when average daily rate (ADR) begins to drive revenue gains. However, in 2012, PKF-HR’s increased outlook for RevPAR change is driven by the stronger than expected gains in occupancy. Historically, occupancy driven RevPAR gains would not lead to projections of significant improvement on the bottom-line.
“Just as history cannot explain the recent growth in lodging demand, it has failed as an indicator of changes in hotel profits. We continue to be impressed with the job management has done controlling expenses and converting the extra guest counts into profits,” Woodworth noted. “We expect cost controls will help convert future growth in revenue to double-digit growth in NOI.” PKF-HR is forecasting unit-level profits to increase by 10.9 percent in 2013 and 16.1 percent in 2014.