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ATLANTA-Locally based PKF Hospitality Research says the current decline in the US lodging industry will be deeper and longer than previously predicted, based on worsening economic projections. Revenue per available room (RevPAR) is expected to decline nearly 14% this year, with quarterly sales gains not anticipated until early 2011.

In analyzing 50 major hotel markets nationwide, the firm has determined that even though each of those markets varies based on local characteristics, the aggregate performance of thousands of hotels appears grim. PKF’s revised 2009 forecast, which earlier this year predicted a 10% RevPAR decline, is based on a 7.8% falloff in occupancy this year, as well as a decrease in average daily rate of 6.4%–the lowest since the early 1930s.

“When revenue contraction is heavily influenced by declines in ADR, the downward impact on profit is amplified,” says Mark Woodworth, president of PKF Hospitality Research. PKF also forecasts that the average US hotel profits will fall by 30% this year, another level of deterioration not seen since the Great Depression.

While double-digit declines in revenue and profit appear certain this year, PKF reports that the worst should occur in the current quarter and begin to subside by mid-2009. Woodworth says the magnitude of RevPAR declines will taper off to single digits late this year, with the leaching lessening through the ongoing, extended trough in the business cycle.

“By the end of the year, two of the 50 markets are forecast to show year-over-year gains in their fourth-quarter RevPAR,” he says. Minneapolis will see a 6.8% gain from its weak fourth quarter in 2008, while California’s Orange County, home to numerous hotels surrounding Disneyland, can expect gains of 1.7% in this year’s fourth quarter, followed by 7.7% in the first quarter of 2010.

RevPAR declines across the country this year range from 26.1% in New York City to 6.8% in Pittsburgh, based on PKF data, and Woodworth notes that those markets where new-room supply outpaces demand will be hurt worst. However, 14 of the hotel markets tracked by the firm should see increases as soon as next year and all 50 will be back in positive territory by 2011, though some may take a while longer to return to 2008 levels.

“Lenders, investors and operators should continue to be cautious because all but the hotels in Houston are forecast to continue to report occupancy levels below their long-term average,” Woodworth states in PKF’s latest Hotel Horizons report. He cites Houston as an exception because lodging demand is expected to be stronger than the period after Hurricane Ike last September.

For added perspective, a senior advisor to PKF points out in the report that a slowdown in the pace of revenue declines can be hailed as an improvement. “The darkest hour is always just before the dawn, and we expect to see that in mid-2009,” stated John Corgel, real estate professor at Cornell University’s School of Hotel Administration.

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