RevPAR Growth Will Span Sector: PKF

ATLANTA—In a case of rising tide actually lifting all boats, a rallying US economy is giving a lift to RevPAR for all classes of product in the hotel sector, says PKF Hospitality Research. Increasingly, that's the case across a broader geographic swath of the country, thus helping propel RevPAR growth ahead of long-term averages across all chain-scales through 2017.

“No matter what hotel performance indicator you look at for any type of hotel, we foresee extremely favorable movements the next few years,” says R. Mark Woodworth, president of Atlanta-based PKF-HR, a CBRE company. “Our firm is projecting demand growth to outpace changes in supply in the U.S. through 2016. That will result in industry wide occupancy levels at, or above, all-time record levels through 2017.”

Further, PKF-HR's Hotel Horizons report for December forecasts ADR to increase by an annual average of 5.4% through '17. That will drive an average 11.8% annual rise in unit-level NOI during the same period, including a 13.2% year-over-year increase projected by 2015.

Previous research conducted by PKF-HR found that changes in employment have the greatest impact on the performance of hotels in the lower-priced chain-scales, while changes in income influence the demand for upper-priced properties. With employment gains having now reached all segments of the population, Woodworth forecasts “strong RevPAR forecasts for all segments of the US lodging industry.”

He adds, “The current favorable economic outlook is not only deep, but long as well. That will result in an extended period of peak performance for all participants in the U.S. lodging industry. As if that were not ample good news, the world oil market dynamics are generating prices for transportation fuel that work to the benefit of travelers.” Provided that low energy prices are sustained, hotel performance for '15 will be “better than expected.”

The positive impact of employment gains is evident not only across the board, but also in PKF-HR's forecasts of individual lodging markets across the US. “Half of the 20 Hotel Horizons markets forecast to enjoy the greatest increases in employment also are projected to benefit from the greatest increases in lodging demand,” says John B. Corgel, the Robert C. Baker professor of real estate at the Cornell University School of Hotel Administration and senior advisor to PKF-HR. “Further, according to Moody's, close to 90% of the local economies in the US currently are classified as being in either a recovery or expansion phase.” As a result, Corgel says, 15 of the 55 markets surveyed by PKF-HR will achieve all-time record high occupancy levels in '15.

In PKF-HR's forecast for next year, the bottom-ranking metric in terms of growth is supply: 1.2%, compared to a 1.3% increase in occupancy. “With scarcity now a reality for consumers in many markets for a growing number of property types, hotel operators will have the leverage they need to drive room rates well above the pace of inflation,” Woodworth says. “Real ADR growth driving RevPAR will contribute to a six year period of double-digit increases in hotel profits.” This, he adds, is “something we have not seen in the 78 years PKF has been tracking the US lodging industry.”