Jan Freitag, vice president of Henderson, Tenn.-based Smith Travel Research, did his best to put a good spin on the state of the
“It was a long, cold winter in 2009 and ’10, but spring is in the air,” said Freitag, during an industry data presentation. “The good
As Freitag demonstrated, transient occupancy is “roaring back but group business is still in a critical but stable position.” Rates in the group market also are a problem.
Smith Travel’s 2010 forecast calls for flat occupancy and a 3.2% drop in both rates and revenue per available room (RevPAR). Next year, occupancy and rates will rise by about 2% with RevPAR up 4.2%. The forecast differs by market segment, with economy properties faring the worst, with RevPAR forecast to be down 6.7%. In contrast, midscale hotels without food and beverage are projected to have the best year, with RevPAR down only 1.2%.
Freitag also focused on these two segments to explain the downturn in supply growth: The midscale without food and beverage
While the news is good on new supply, the pace of average daily rate (ADR) increases will ultimately dictate how fast the hotel industry recovers. “It took the industry seven years to recover from the rate decline following 9/11,” said Freitag. “We’re facing the same scenario now, which will continue to squeeze profits.”
Rate increases follow improvements in demand, and Freitag said it takes 2% demand growth each quarter in order for rates to increase by the inflation rate. One depressing slide from Freitag showed that had ADR increased by CPI since 2007, it would reach $108.91 by the end of 2010. The Smith Travel forecast calls for this year’s ADR to only reach $94.39.
In a presentation that followed, Mark Woodworth, president of Atlanta-based PKF Hospitality Research, focused on the impact forecasted hotel industry performance can have on capital availability and
“Although the cumulative loss in hotel asset value has been substantial since 2008, significant asset appreciation should commence in 2008,” Woodworth said, “and persist through 2014 as cap rates fall further in response to stabilizing incomes.”