While occupancy is projected to grow at a rate of 1.4%, the number of new hotel rooms is projected to increase by 2%. The result will be a net 0.6% decline in occupancy rate for the nation's largest lodging markets, according to the summer edition of Hotel Outlook, an economic forecasting model developed by PKF and Torto Wheaton Research.
"The fact is that we are approaching the peak of the current business cycle, and a slowdown in the pace of growth would not be difficult to imagine," says PKF president R. Mark Woodworth. "That being said, the US lodging industry is still forecast to realize continued growth in revenues and profits."
Despite the predicted decline in occupancy rates, the average occupancy rate is projected to be 68%, above the long-term average of 66.4%. In addition, 24 of the 52 cities tracked are expected to experience increases in occupancy levels. The markets forecast to experience the greatest declines are those in areas heavily impacted by hurricanes over the past two years. "The temporary housing of displaced citizens, relief and construction workers, insurance adjustors, convention delegates and sporting event spectators has caused artificial ripples in typical business cycles of several Gulf Coast, southeast and south central lodging markets," Woodworth notes.
Another factor influencing the projected decline in occupancy rates is that most cities have reached, or are approaching, their realistic capacity levels. "Based on their historical demand mix and seasonality patterns, markets have established theoretical maximum occupancy thresholds," Woodworth says. "Occupancy rates will not continue to grow indefinitely."
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