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Looking for Recovery

Recovery in the U.S. lodging industry will occur a full quarter before expected, according to a study by PKF Hospitality Research (PKF-HR). The December issue of Hotel Horizons shows that decline in average daily room (ADR) rates bottomed out during the third quarter of 2009, but the magnitude of the decline was lower actually than anticipated.

"Make no mistake about it, 2010 will continue to be a tough year for U.S. hotel owners and operators," said R. Mark Woodworth, president of PKF-HR. "We are forecasting that, on average, properties will continue to suffer year-over-year declines in revenue and profits from an already dismal 2009. However, given the deceleration of room rate discounting that we observed during the third quarter of 2009, we believe the severity of the losses incurred in 2009 and 2010 will be less than previously forecast. In addition, year-over-year growth in occupancy, RevPAR and demand will be realized a full quarter earlier than we were thinking three months ago."

According to Smith Travel Research, ADR for U.S. hotels declined 9.8 percent in the third quarter of 2009 compared to the same period in 2008—a full 2.2 percentage points better than was forecast by PKF-HR earlier this year. Concurrently, the national occupancy level declined 7.9 percent, a near match to the 7.8 percent drop forecast by PKF-HR. The net result was an actual 16.9 percent decline in RevPAR during the third quarter, roughly two points less than PKF-HR's projected decline.

"While our forecast for ADR movement in the third quarter was a bit pessimistic, we recognize the change in pricing trends and have applied it to our thinking regarding the future. Accordingly, this year's annual ADR forecast has been reduced to a decline of 8.8 percent, and our is now a minus 1.5 percent. These compare to declines of 10.4 percent and 3.1 percent that we forecast last quarter," Woodworth observed.

Hotel Horizons is a quarterly series containing five-year forecasts of performance for the U.S. lodging industry and 50 major markets across the country. The lodging forecasts presented in the December 2009 edition are based on Smith Travel Research hotel performance data through September 2009 and Moody's Economy.com October 2009 economic forecast for the nation.

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