Could this be the end of record-breaking levels of profitability and strong revenue increases in the hotel industry? Say it isn't so! As optimistic as industry players might want to be, a study conducted by New York-based PKF Consulting reveals that it just might be the end of a 7-year upward trend of revenue increases and record-breaking levels of profitability.
According to the study - conducted by PKF's research team, The Hospitality Research Group (HRG) - major U.S. lodging markets will experience a second year of declining occupancy in 1999. "By year-end 1999, HRG/PKF estimates that the average occupancy for major U.S. cities will decline 1.7%, from 71.8% in 1998 to 70.6% in 1999," the study notes, which was released as part of the company's annual State of the Hotel Industry report.
The study continues, "Through the first six months of 1999, two-thirds of the 44 cities in the HRG/PKF survey achieved a lower occupancy as compared to the same period in 1998. This pattern is expected to continue through the end of the year."
But developers and industry players should not see this decline as the beginning of the end or the calm before the storm. Robert Mandelbaum, director of research at PKF Consulting, and Jack Corgel, managing director of applied research at PKF's Hospitality Research Group, say the "end" of the upward trend does not indicate the beginning of a downward trend, but more of a stabilization of the industry.
"In general, it's a stabilization or a flattening of the market," says Mandelbaum. "I think we're going to see, over the next one or two years, a more moderate performance in the hotel industry."
According to Corgel, this "stabilization" of the market is merely part of the way real estate works. "It's part of the general real estate cycle," says Corgel. "It takes time to put a product on the market. For hotel properties, the process of construction is very complicated." Combine that with the difficulty of obtaining financing for hotels, and you have an extremely cyclical industry that sees periods of stabilization.
Corgel and Mandelbaum also agree that, while the hotel industry is seeing a general stabilization, there are still hot spots where hotels are flourishing. "Certainly there are strengths in the metropolitan areas," says Corgel. "Seattle, San Francisco and San Diego are killing in terms of profitability."
Experts at PKF say there is good news. "Hotel owners, operators, lenders and investors are much smarter after the lessons learned 10 years ago," notes the report. "Experience has led to the sound practices that resulted in the 1990s becoming the most profitable decade of the 20th Century for the U.S. hotel industry."
I guess it is true about what they say - knowledge is power.