Lodging Industry Financial Outlook Remains Strong

ATLANTA—The outlook for the U.S. lodging industry continues to be extremely strong, according to the recently released June 2015 edition of PKF Hospitality Research’s (PKF-HR) Hotel Horizons. The report forecasts that U.S. hotels will continue to enjoy revenue per available room (RevPAR) growth more than twice the long-run average (7.2 percent increase in 2015 and 6.8 percent in 2016). The slowdown in 2016 should not worry hoteliers because the growth in average daily room rate (ADR) will drive the increase in RevPAR, which ultimately is more profitable for hoteliers.

“I look back 90 days ago at our March 2015 forecasts and see that our expectations for hotel performance have not changed that much,” said R. Mark Woodworth, senior managing director of PKF-HR. “The consistency of our forecasts is an indication that the U.S. lodging industry is now in that part of the business cycle where performance is highly predictable.” In March of 2015, PKF-HR forecast RevPAR growth of 7.3 percent for 2015 and 6.5 percent for 2016.

“Predictable performance means different things for each participant,” Woodworth noted. “Operators can efficiently schedule their staff. Owners can more confidently project their cash flows. Investors and lenders can make their investment decisions assuming a relatively low risk environment.”

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While the outlook for the industry has not changed much, there are always evolving current events that need to be taken into consideration. During the first quarter of 2015, lodging demand grew at a very healthy 4.2 percent. However, this was less than the PKF-HR forecast of 5.1 percent.

“Our over-estimation of first quarter 2015 demand growth can be attributed to a combination of economic and non-economic factors,” 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 adviser to PKF-HR. “Extreme winter weather had a negative impact on hotel performance in Boston, New York, and Chicago. Low oil prices have suppressed gasoline prices, but impaired local economies in the North and South Central regions of the country. Finally, the surge in the value of the U.S. dollar has hurt exports and caused some contraction in manufacturing. Fortunately, we have yet to see any significant declines in inbound overseas travelers.”