US Hotel Industry Recovery Gains Momentum

ATLANTA-The hotel industry recovery is still gaining momentum, though occupancy gains are outpacing room rate gains. So says the June 2011 edition of PKF Hospitality Research’s Hotel Horizons. PFK-HR is predicting the demand for US hotel rooms this year will climb 4.9% even as the average daily room rate rises 2.4%.

“We continue to be impressed by the pace at which travelers have returned to the road after the depths of the Great Recession,” says R. Mark Woodworth, president of PKF-HR. “Given the headwinds created by stagnant employment and continued weakness in the housing sector of the economy, it is somewhat surprising that hotel demand continues to bounce back as quickly as it has.”  

The only notable concern is sluggish increases in room rates, since ADR growth powers profits. Given the sustained robust increases in demand, combined with limited new competition, Woodworth says one would expect that hoteliers should be able to start raising room rates more aggressively. But with competition still heavy and plenty of supply on the market, rates aren’t rising quickly.

“We are forecasting that only 12 of the largest lodging markets in the US will achieve an occupancy in 2011 that is greater than their long-run average,” Woodworth says. PKF-HR is forecasting that US room rates beyond 2011 will grow at a greater pace: 5.5% in 2012 and another 5.8% in 2013.

The economic projections produced by Moody’s Analytics drives PKF-HR’s forecast--and Moody’s outlook for the US economy has continued to sour since January 2011. Indeed, Moody’s has steadily lowered their 2011 forecasts for employment, income and GDP growth since the beginning of the year.  

“To reflect Moody’s fading optimism about the economy in 2011, we have in kind adjusted our lodging forecasts,” says John Corgel, Ph.D., the Robert C. Baker Professor of Real Estate at the Cornell University School of Hotel Administration and senior advisor to PKF-HR. “Compared to our thinking back in March of this year, our expectations for lodging demand growth have improved, but our projections of rate growth have diminished.”

The early stages of this lodging recovery were dominated by the upper-tier properties. According to STR, RevPAR growth was by far greatest among luxury hotels in 2010. Looking towards 2011 and beyond, PKF-HR predicts the recovery will spread across the entire spectrum of the lodging industry.