Revenue per available room (RevPAR) is now forecast to drop 7.8% in 2009, according to PKF Hospitality Research, the fifth largest annual decline since 1930, when the measure began. What’s more, hotels are not projected to see a year-over-year increase in RevPAR until mid-2010.
“The speed and severity of the downturns in employment and income continue to accelerate,” says Mark Woodworth, president of PKF based in Atlanta. “Given the strong correlation between these two economic measures and demand for lodging accommodations, we are forecasting 2.5% fewer occupied rooms in 2009. This follows an estimated 1% decline in demand for year-end 2008.”
PKF-HR recently updated its forecast based on Smith Travel Research lodging performance data through September 2008 and the November release of Moody’s Economy.com economic forecast for the nation.
The expected 2.5% decline in demand, combined with a 2.9% increase in supply, will result in a 2009 year-end occupancy level of 57.6%. “The combination of above average net increases of supply occurring simultaneously with dramatic declines in demand is something we have not seen in recent industry recessions. This is what makes this downturn so severe,” says Woodworth.
While hotel owners and operators pushed average daily rates (ADR) up 3.7% in the first nine months of the year, PKF now forecasts a 2.7% decline in ADR for 2009, as a result of deteriorating economic conditions. The drop will lead to a 14% decline in net operating income (NOI) for the average U.S. hotel from 2008 to 2009. NOI is defined as income before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization.
On the bright side, with fewer guests, operating expenses will also decline, according to PKF. “Looking back at previous industry recessions, we know that hotel managers will respond and cut costs,” says Woodworth. “Fewer occupied rooms will reduce variable expenses such as payroll and operating supplies.