PKF Hospitality Research estimates that hotel revenue per available room (RevPAR) will reach its cyclical low point in the third quarter of 2009, according to its June 2009 edition of Hotel Horizons. This will bring to a close the escalating trend of declines in RevPAR that began in the third quarter of 2008, according to Smith Travel Research.
As unemployment goes up, lodging demand goes down. Based on the latest employment forecasts, the new expectation is for RevPAR to decline 17.5% in 2009, followed by another 3.5% decline in 2010.
"The good news is that the bottom of the current cycle for the U.S. hotel industry is soon to arrive. The bad news is that 2009 will be the weakest year on record for the domestic lodging industry, and 2010 is going to be disappointing as well. Accordingly, industry participants need to calibrate their expectations when analyzing lodging performance measurements," said R. Mark Woodworth, president of PKF Hospitality Research. "If you are wondering when we'll start to see actual growth in RevPAR, then you'll have to wait until 2011. However, if you want to know when the operating environment is going to get a little less painful, that's happening right now."
"We have identified the turning points and inflection points on the current business cycle. Knowing these milestones allows hotel owners and operators to properly prepare their operating and capital budgets, as well as investment strategies, for the remainder of 2009 and the years to come," said Woodworth. "Given where we are at in the cycle, turning points denote the bottoming out of a measure, while inflection points mark when the important indicators exhibit positive growth. Accordingly, all the major lodging statistics turn in 2009, but occupancy won't begin to inflect until 2010, and ADR will not exhibit growth until 2011."
Given the forecast 17.5% decline in RevPAR for 2009, PKF-HR is projecting total hotel revenues to decrease 16% for the year. U.S. hotel managers, as they have in the past, will cut costs by 7.5%, but that will not be enough to avoid a decline in the typical hotel's net operating income. PKF-HR is forecasting that the typical U.S. hotel will suffer a 37.8% decline in NOI in 2009 and an additional 9.2% in 2010.
While the cumulative declines in revenue and profits during the current industry recession exceed those of previous industry downturns, the magnitude of forecast recovery could be exceptionally robust. In 2011 and 2012, PKF-HR forecasts that RevPAR will increase on an average annual basis of 9.2%, while profits will rise at a 17.8% pace.
"If you are an owner, investor, or lender that can weather this year and next, the return to prosperity should be strong and quick," Woodworth observed.
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