While occupancy levels and average daily rates (ADR) in the last quarter of 2009 are expected to remain below levels from one year ago, resulting in a 16.4% decrease in room revenue per available room (RevPAR) in 2009, PricewaterhouseCoopers expects hotel occupancy rates will increase in 2010. However, 2010 ADR levels are expected to remain below 2009 room rate levels.
According to PricewaterhouseCoopers current lodging forecast, lodging demand in the fourth quarter is forecast to be 0.5% below last year's levels, resulting in an annual decline of 5.5% in 2009.
Lodging supply continued to grow in the third quarter of 2009, resulting in an upward revision of PricewaterhouseCoopers' supply growth forecast for this year to 3.2%. However, the pace of supply growth peaked at a slower rate in this cycle than during the previous two recessions of 1990-91 and 2001. Despite a deceleration in supply growth, the supply-demand imbalance is expected to compress occupancy levels by 8.4% in 2009, resulting in an average annual occupancy level of 55.2%. Room rates are expected to continue to be compressed, resulting in an 8.8% decline in ADR and a 16.4% decrease in RevPAR in 2009.
In 2010, PricewaterhouseCoopers forecasts that a supply growth of 1.4%, combined with growing demand, will result in a subtle recovery of hotel occupancy to 55.8%, which is 7 percentage points less than the long-term average of 62.8%.
Meanwhile, signs of recovery in hotel pricing are not yet evident. It is expected that the steepest declines in ADR have passed, but that year-over-year ADR levels will continue to decline, resulting in a 1.8% decline.
"Barring any unforeseen circumstances from an operating perspective, the worst appears to be over," says Scott D. Berman, principal and U.S. Industry Leader, Hospitality & Leisure, for PricewaterhouseCoopers. "To what degree the industry experiences recovery is predicated on an improving economy, which facilitates lodging demand growth, and operators' ability to achieve higher pricing."
Download this story and all of the stories in the Watch List Newsletter here. The Adobe pdf version also includes all of this week’s leads of distressed properties and loans of concern, lease cancellations applied for in bankruptcy proceedings, all of the local and national facility closures & layoffs, banks with distressed real estate portfolios and lists of loans approaching their maturity date. Plus the pdf version contains bonus news items not found in these columns or the CoStar Group web news pages.
Receive notice when a new Watch List Newsletter column is published by receiving The Watch List E-Mail Alert. It's the quickest way to link directly to the news and leads you want. Just e-mail me your name, title, company, company business, city, state, and e-mail address. You can reach me by clicking on the byline above or e-mailing me at Mark Heschmeyer