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ATLANTA-The protracted economic downturn has led locally based PKF Hospitality Research to revise its projections for lower profit and revenue next year. After predicting earlier this fall that lodging demand will decline for a second straight year, the firm now forecasts a profit decline of 7.9% in 2009 for US hoteliers, along with a 4.3% reduction in revenue per available room.

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

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

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

“It’s not the depth of the upcoming lodging industry recession that concerns us. It is how fast market conditions have weakened and the rapidly changing outlook for the nation’s economy,” Woodworth said. “Uncertainty is the greatest bugaboo.”

Woodworth also points to a September report by Smith Travel Research that projects a 5.9% drop in occupancy and weak average daily rate growth, which he believes is the start of an even larger and longer decline for the hotel industry. PKF Hospitality forecasts 58.3% average occupancy in 2009, the lowest level in the last two decades.

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

Declining profits and scarcity of debt is also causing downward pressure on asset values, thereby creating buying opportunities, observed Jack Corgel, a Cornell University hotel administration professor and senior advisor to PKF Hospitality. “Savvy investors and opportunistic lending sources will emerge in the near term, and money will be made,” Corgel stated in the firm’s latest report.

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