Uncertainty Clouds 2013, Clear Skies 2014 And Beyond
ATLANTA -- December 13, 2012
According to PKF Hospitality Research, LLC (PKF-HR), the U.S. lodging industry
continues the extremely healthy upward trend it began in 2Q10, with ongoing
gains in all the major business measurements: lodging demand, occupancy,
average daily rate (ADR), and revenue per available room (RevPAR). Looking
forward, the company is forecasting a perpetuation of this growth through
2016. According to the recently released December 2012 edition of Hotel
Horizons®, RevPAR for U.S. hotels is projected to grow at a compound annual
average rate of 7.2 percent for the next four years. This is more than double
the historical long-run average.
“Despite all these positives, there is a pall on lodging industry participants
induced by the federal budget negotiations,” said R. Mark Woodworth, president
of PKF-HR. “Hoteliers are eager to begin enjoying what appears to be a four
year period of sustained high levels of prosperity. Unfortunately, there is so
much uncertainty surrounding 2013 that almost no one overtly is showing the
optimism that should exist.”
PKF-HR’s Hotel Horizons® forecasts are based on historical lodging performance
data from Smith Travel Research (STR) and Moody’s Analytics’ economic
forecasts. Moody’s provides PKF-HR with multiple economic forecast scenarios.
The Moody’s “expected case” economic forecast that drives the December 2012
lodging projections of PKF-HR assumes a resolution to the budget negotiations.
“Without falling off the fiscal cliff, we believe RevPAR in 2013 will increase
by 6.0 percent. However, if budget negotiations fail, it can be assumed that
RevPAR growth will be well below that,” said Woodworth. “The good news is that
under most every economic scenario, 2014 is shaping up to be a year of strong
gains in both occupancy and ADR. Beyond 2014, without any meaningful new
supply additions in sight, we should see record profitability.”
Room Rates Rise
By year-end 2013, PKF-HR is forecasting the national occupancy rate to be 62.1
percent. While this is below the pre-recession peak of 63.1 percent, it does
surpass the long-run average occupancy level of 61.9 percent per STR. “From
previous research, we know that once occupancy reaches this important
milestone, hotel managers gain the leverage they need to be more aggressive
with pricing. Over the next four years, we are forecasting ADR growth of 5.4
percent on a compound annual basis,” said Woodworth.
Much of the gains in ADR will be experienced by properties in the luxury,
upper-upscale, and upscale chain segments. Occupancy levels for these
properties are projected to remain above 70 percent through 2016.
Properties in the upper-tier chain scales have led the recovery, but going
forward PKF-HR is projecting the demand for more moderate-priced hotels to
pick up. “This is consistent with the changes we have observed in the economic
factors that have the greatest impact on lodging performance,” said John B.
(Jack) Corgel, PhD., the Robert C. Baker professor of real estate at the
Cornell University School of Hotel Administration and senior advisor to
PKF-HR. “The initial stages of the recovery were influenced by growth in
personal income, which favors the generation of demand for higher-priced
hotels. Now we are starting to see slight improvements in employment, the
economic variable that stimulates greater levels of demand for lower-priced
With roughly 85 percent of future RevPAR growth driven by increases in ADR,
PKF-HR is forecasting unit-level net operating income to grow at a compound
annual rate of 10.0 percent through 2016. “We are in the middle of five
consecutive years of double-digit gains in hotel profits, a streak not seen
since the high inflation days of the 1970s,” Woodworth noted.
Local Market Performance Varies
PKF-HR is forecasting ADR gains for all 50 metropolitan areas in the Hotel
Horizons® universe during 2013. Conversely, for 20 of these markets, the
annual occupancy rate is expected to decline. In seven of the 20 markets, the
decline in occupancy can be attributed to a forecast drop in the number of
rooms occupied. “On the surface, it is concerning that we are observing
declines in demand. However, for cities like Oakland, Oahu, San Francisco, and
Los Angeles, occupancy levels will surpass 70 percent. These cities are at a
point in their respective business cycles where price hikes will deter demand.
But that is OK, and potentially more profitable for most hotels,” said
As with its ADR predictions, PKF-HR is forecasting a 2013 RevPAR increase in
all 50 markets. Among the 10 markets forecast to enjoy the greatest gains in
RevPAR, five are located in Texas. On the other end of the spectrum, five of
the 10 markets projected to achieve the least growth in RevPAR are cities
experiencing relatively strong levels of levels in supply growth. On average,
the room inventory in these ten cities will rise by 1.7 percent in 2013.
“It may take a few months into 2013 before we see the data that will get hotel
owners and operators excited. Still, from our vantage, when we look beyond
next year, we see one of the best times in history to invest in the U.S.
lodging industry,” Woodworth concluded.
To purchase a December 2012 Hotel Horizons® report, please visit
www.hotelhorizons.com. Reports are available for each of 50 major metropolitan
areas in the U.S., and contain five year projections of supply, demand,
occupancy, ADR, and RevPAR.
ABOUT PKF CONSULTING USA, LLC
Headquartered in San Francisco, PKF Consulting USA, LLC (www.pkfc.com) is an
advisory and real estate firm specializing in the hospitality industry. PKF
Consulting USA is owned by FirstService Corporation (FSRV) and is a subsidiary
of Colliers International. The firm operates two companies: PKF Consulting
USA, LLC. and PKF Hospitality Research, LLC. The firm has offices in New York,
Boston, Indianapolis, Chicago, Philadelphia, Washington DC, Atlanta,
Jacksonville, Tampa, Orlando, Houston, Dallas, Los Angeles, Bozeman, and San
U.S. Lodging Forecast
Change From Prior Year
Indicator 2012 Forecast 2013 Forecast
Supply 0.5% 0.8%
Demand 3.0% 1.8%
Occupancy 2.6% 1.0%
ADR 4.2% 5.0%
RevPAR 6.8% 6.0%
Unit-Level NOI* 13.3% 10.2%
Note: * Before deductions for capital reserve, rent, interest, income taxes,
amortization, and depreciation.
Sources: PKF Hospitality Research, LLC - December 2012 Hotel Horizons® report
Lodging Demand Contracts In Some U.S. Markets
Forecast Change - 2013
Market Change in Demand Change in ADR
Oakland -1.1% 7.2%
Oahu -0.9% 10.4%
Saint Louis -0.7% 5.6%
San Francisco -0.4% 8.8%
Los Angeles -0.3% 5.3%
Indianapolis -0.2% 2.6%
Portland -0.2% 6.8%
Source: PKF Hospitality Research, LLC - December 2012 Hotel Horizons® report.
PKF Hospitality Research, LLC.
R. Mark Woodworth, 404-842-1150, ext 222
Daly Gray Public Relations
Chris Daly, 703-435-6293
Press spacebar to pause and continue. Press esc to stop.