NEW YORK CITY—Hilton Worldwide Holdings said late Monday afternoon that it had realized $2.6 billion in gross proceeds from a secondary offering that commenced a week earlier. For the McLean, VA-based lodging giant—which completed the offering on the same day another Blackstone Group company, Brixmor Properties Group, began one of its own—the sale of 103.5 million shares underscores the strength of the hotel sector’s recovery. It’s a point also made by a forecast report that PwC US issued Monday.
Even as supply growth accelerates in 2015, with the result of moderating growth in occupancy, PwC predicts that industrywide occupancy levels will reach 64.9%, the highest levels since 1984. That will give hotel operators the leverage to drive more aggressive pricing, says the New York City-based firm.
“Group demand improved significantly in the third quarter, leading to stronger-than-expected occupancy levels,” says Scott D. Berman, principal and US industry leader with PwC’s hospitality and leisure practice. “Despite an evolving supply pipeline, industry demand trends are expected to remain robust, giving confidence to the operating community to drive room rates higher in 2015.”
During the first nine months of 2014, both individual and group travel exhibited solid momentum, PwC says. That being said, group demand recovered at a faster pace year over year than did individual stays, and the momentum is expected to carry through the fourth quarter of this year and into the coming year.
The strong outlook for group demand, combined with continued strong transient travel activity and a positive economic environment, will drive an 8.2% increase in RevPAR this year. For ’15, PwC is projecting that RevPAR growth will moderate to 7.4%, but at the same time ADR growth will tick upward by 150 basis points from the ‘14% projection of 4.7% to 6.2%, the biggest Y-O-Y gain since 2007. By way of comparison, 2009 saw ADR decline by 8.6% and RevPAR diminish by 16.6%, according to PwC data.
The estimates from PwC are based on a quarterly econometric analysis of the lodging sector, using an updated forecast released by Macroeconomic Advisers LLC in October and historical statistics supplied by STR and other data providers. As a context for lodging sector growth, Macroeconomic Advisers expects real GDP to increase 2.2% this year, and accelerate to 2.8% growth in ‘15, measured on a Q4-over-Q4 basis.
Based on this analysis and recent demand trends, PwC is forecasting a 4.3% increase in lodging demand for ’14. Combined with still-restrained supply growth of 0.9%, this is anticipated to boost occupancy levels to 64.2% by year’s end.
PwC’s outlook expects supply growth to accelerate to 1.4% in 2015, given the increasing momentum of new construction: development was up 40% Y-O-Y in Q3. As another trend in terms of demand, occupancy levels in the lower-priced chain scale segments are expected to approach or exceed prior peak levels, as price-driven compression from higher-priced hotels drives demand to their lower-priced equivalents.