Industry NewsPKF-HR Forecasts Record Occupancy for 2015

PKF-HR Forecasts Record Occupancy for 2015

ATLANTA—The U.S. lodging industry will achieve 65 percent occupancy in 2015, the highest national occupancy rate since STR Inc. began reporting data in 1987, according to the recently released September 2014 edition of PKF Hospitality Research’s (PKF-HR) Hotel Horizons. By year-end 2015, PKF-HR projects that the demand for lodging accommodations will have increased 25.8 percent since the depths of the recession in 2009, while the supply of hotel rooms will have grown by just 5.6 percent.

“An ever-improving economy, and the favorable relationship between supply and demand, have led to significant growth in both revenues and profits from 2009 to the current year. We expect this trend to continue through 2017,” said R. Mark Woodworth, president of PKF-HR. “The 1990s were the only other time we observed such a sustained confluence of positive economic and market conditions.”

With U.S. hotels achieving all-time high occupancy levels, PKF-HR believes that hoteliers will be able to increase their average daily rates (ADR) at an average annual pace of 5.7 percent from 2015 through 2017. Concurrently, Moody’s Analytics, PKF-HR’s source for economic projections, is forecasting the annual pace of inflation to average just 2.5 percent.

“The best news for U.S. hotel owners and investors is that the combination of high occupancy levels and significant real ADR growth will perpetuate strong bottom-line gains. PKF-HR is projecting the current three year streak of double-digit gains in net operating income (NOI) to continue through 2016,” Woodworth noted. “We have not seen six years of such strong and sustained profit growth in the 78 years PKF has been tracking the U.S. lodging industry.”

Prosperity is Pervasive
PKF-HR’s forecasts of positive performance apply to almost all aspects of the U.S. lodging industry. By year-end 2014, all six national chain-scales, and the vast majority of major markets, will have surpassed their pre-recession levels of RevPAR. Several markets, including Seattle, Los Angeles, Houston, Pittsburgh, and Miami, will surpass their all-time record occupancy levels this year or next.

“Up to now, the economic recovery has mostly impacted high-income, highly-educated, and high-skilled people. This has led to an imbalanced pattern of lodging recovery that has favored upper-priced properties and large coastal markets,” said John B. (Jack) Corgel, PhD., the Robert C. Baker professor of real estate at the Cornell University School of Hotel Administration and senior advisor to PKF-HR. “Now, with employment levels on the rise across all employment sectors, we are seeing a commensurate uptick in performance across the entire U.S. lodging spectrum.”

“Given the spreading economic improvements, it is not surprising that we are now seeing secondary markets like Memphis, Richmond, and Raleigh-Durham lead the nation in projected occupancy gains in 2014,” Woodworth added.

PKF-HR forecasts that on average, the lower-priced chain-scale segments will achieve greater RevPAR growth (8.4 percent) in 2014 compared to the upper-priced (7.1 percent) categories. Being further along the business cycle, the upper-priced RevPAR gains are heavily influenced by ADR, while the lower-priced RevPAR growth is the result of a balance between occupancy and ADR increases.

2015 Budget Guidance
As U.S. hotel managers prepare budgets for 2015, PKR-HR offers the following summary of its 2015 forecast: Supply: 1.3 percent; Demand: 2.2 percent; Occupancy: 0.9 percent; ADR: 5.7 percent; RevPAR: 6.7 percent; NOI: 12.4 percent.

“Based on previous research conducted by our firm, we know that hotel budgets, as well as PKF-HR’s forecasts, are most accurate during the current ‘sweet spot’ phase in the business cycle. All industry participants should have a high degree of confidence that the business environment will offer the potential for strong lodging industry performance in the next few years,” Woodworth concluded.