The lodging industry has clearly reversed course since the financial crisis when RevPAR declined by 16.5% in 2009. The U.S. hotel industry is forecast to continue to achieve strong gains in both revenue and profits in 2013, according to the newest industry research.
PKF Hospitality Research LLC is projecting that U.S. hotels will enjoy a 6.1% increase in revenue per available room (RevPAR) for the year, along with a 10.2% boost on the bottom-line net operating income.
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“The uncertainty and fear generated by Congress’ handling of the fiscal cliff and sequester may have tempered the pace of economic growth, but it has not completely shut down the growth in demand for lodging accommodations,” said R. Mark Woodworth, president of PKF-HR. “Our forecast of a 1.8% increase in demand for 2013 is somewhat muted compared to the 3% increase recorded by Smith Travel Research in 2012. However, when you combine the 1.8% growth in lodging demand with a projected increase in supply of just 0.8%, occupancy levels will rise to 62.0%. This will take the U.S. lodging industry past the long-run average occupancy level of 61.9%, a significant milestone.”
Some of the economic headlines seen during the first two months of 2013 can be perceived as alarming. The Commerce Department issued a downward revision to its estimate of real Gross Domestic Product (GDP) for fourth quarter of 2012, and some prognosticators believe the economy will stall in 2013 because of the sequester.
“Further analysis of these statements reveals that a significant factor driving this bearish outlook for GDP is a reduction in government spending,” 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. “Fortunately, when it comes to the drivers of lodging demand, government spending is a relatively minor component of GDP. PKF-HR is more encouraged by Moody’s Analytics’ expectations for strong growth in personal consumption and business investment in 2013. These are the expenditures that really drive the demand for hotels.”
2013 will be another strong one for the US lodging sector, although the rate of growth will be slightly lower than in 2012, according to the Moody's Investors Service report.
U.S. nominal RevPAR will reach a new high in 2013 and surpass the 2007 peak, although it will still be below the peak when adjusted for CPI, the rating agency is forecasting.
"We are anticipating RevPAR growth higher than 5%," said EJ Park, a Moody's vice president. "We also expect RevPAR to continue to grow in 2014 and beyond, although at a slower pace."
"Top markets outperformed small ones in 2012 on the rebound in business travel. With occupancy levels reaching 60% for two years now, rate increases are driving RevPAR growth" added Park.
PKH-HR, though, is forecasting an acceleration of RevPAR in 2014. It is forecasting RevPAR for the U.S. lodging industry to increase by 8.4% in 2014, the greatest annual gain in RevPAR since 2005. The RevPAR growth will be the result of a combination of a 2.1% increase in occupancy and a 6.2% rise in ADR.
“Given where we are in the lodging cycle, the 6.2% growth in 2014 ADR is expected. On the other hand, the 2.1% rise in occupancy is an eye-opener. It can be attributable to the lift in employment growth as forecast by Moody’s Analytics, which will result in more demand moving toward the more moderate priced chain-scales in search of available and affordable rooms,” Woodworth explains.
Not All the Outlooks Are Completely Positive
Business activity in U.S. hotels was flat at a reading of 106.3 in February, according to the latest reading of e-forecasting.com’s Hotel Industry Pulse index. The composite indicator, which gauges monthly overall business conditions in the U.S. hotel industry, had increased 0.2% in January.
HIP's six-month growth rate, which historically has confirmed the turning points in U.S. hotel business activity, had a positive rate of 2% in February, following a positive rate of 2.4% in January. This compares to a long-term annual growth rate of 3%, the same as the 30-year average annual growth rate of the industry's gross domestic product.
The probability of the hotel industry entering into recession, which is detected in real-time from HIP with the help of sophisticated statistical techniques, registered 12.6% in February, slightly up from 11% reported in January. When this recession-warning gauge passes the threshold probability of 50%, the U.S. hotel industry enters a recession.
“The hotel industry pulse has held nearly flat the last several months, showing a stagnation in growth for the U.S. hotel industry,” said Dr. Evangelos Simos, chief economist of e-forecasting.com.
Only one of the three demand and supply indicators of current business activity that constitute Hotel Industry's Pulse Index had a positive contribution to its change in February: Hotel Jobs. The two of the three indicators of current business activity which had a negative or zero contribution to HIP's change in February were Spending on Hotels; and Hotel Capacity.
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