earlier this fall

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"The speed and severity of the downturn in the national economy,both that which has already occurred and that which is anticipatedfor the year ahead, has vastly exceeded our previous expectation,"stated Mark Woodworth, president of the research component ofBoston-based PKF Consulting Inc. He points out that this is PKFHospitality's only other midterm update since the events of Sept.11, 2001.

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A 1.5% decline in lodging demand next year will be aggravated bya 3% rise in new supply, according to Woodworth, who participatedin a GlobeSt.comWebinar on hotel operations strategies Oct. 22. Givenincreased competitive market conditions, he believes hoteliers willonly be able to raise room rates by only 0.1% next year.

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The magnitude of decline in hotel profit forecast just lastmonth by PKF Hospitality has more that doubled in that short of aperiod, Woodworth noted. He now believes a 3% profit declinepredicted this past summer now seems optimistic, especially giventhe stock market's decline over the last several weeks.

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"It's not the depth of the upcoming lodging industry recessionthat concerns us. It is how fast market conditions have weakenedand the rapidly changing outlook for the nation's economy,"Woodworth said. "Uncertainty is the greatest bugaboo."

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Woodworth also points to a September report by Smith TravelResearch that projects a 5.9% drop in occupancy and weak averagedaily rate growth, which he believes is the start of an even largerand longer decline for the hotel industry. PKF Hospitalityforecasts 58.3% average occupancy in 2009, the lowest level in thelast two decades.

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The bright side to all of this, Woodward points out, is thatfewer new hotels will open over the next two years as constructionstarts grind to a virtual halt. He also noted that the majority ofhotel owners are not overleveraged, which should prevent anepidemic of foreclosures and bankruptcies.

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Declining profits and scarcity of debt is also causing downwardpressure on asset values, thereby creating buying opportunities,observed Jack Corgel, a Cornell University hotel administrationprofessor and senior advisor to PKF Hospitality. "Savvy investorsand opportunistic lending sources will emerge in the near term, andmoney will be made," Corgel stated in the firm's latest report.

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