The top forecasters in the U.S. hotel industry said recovery is on its way—eventually. As for 2010? Things certainly could be better.
Editor’s note: This article was originally posted on 11 November 2009. The article was chosen as part of Hotel News Now’s look back at 10 years of the hotel industry.
NEW YORK—When he began his overview of the U.S. hotel industry for attendees of the Hospitality Leadership Forum Saturday, PKF Hospitality Research’s Robert Mandelbaum didn’t beat around the bush.
“Good news, bad news, folks,” said the Atlanta-based firm’s director of research information services. “Good news is all the industry forecasting powers are in consensus. The bad news is next year is going to suck.”
Such pessimism would befall most anyone reading over PKF’s projections. The firm forecasted a 3.1-percent drop in average daily rates and a 2.7-percent decline in revenue per available room for 2010 on top of historic declines in 2009.
But despite very similar data, not every presenter during the general session was quite as dour.
“It’s starting to get better,” said Mark Lomanno, president of Smith Travel Research. “We can probably say with a great deal of confidence: It’s probably not going to get any worse.”
The reason for such optimism? Demand, which Lomanno said has bottomed out. Also working in favor of the industry is the “significant level of decline in the amount of room supply.”
JP Ford, SVP of Lodging Econometrics, concurred. Despite a slight uptick in rooms coming online in the U.S. in 2009—1,387 compared with 1,348 in 2008—the Portsmouth, New Hampshire-based research firm projected 988 openings in 2010, followed by further contraction the year after.
“We expect new openings to decline dramatically in 2011,” he said.
For the time being, however, the industry’s fundamentals are still declining at fairly alarming rates, Lomanno said. Year to date, occupancy is down 9.9 percent, ADR is down 9.1 percent, and RevPAR is down 18.1 percent.
Group business, occupancy and rates
Through September 2009, occupancy was down 10 percent, according to Warren Marr, director of PricewaterhouseCoopers. Of that contraction, 2 percent came from contract business, 17 percent came from transient business, and a whopping 81 percent came from group business.
“The group segment remains the biggest downside risk,” Marr said of 2010.
Lomanno saw as much in his STR numbers: “Occupancy declines for group business are down substantially, whether it’s during the week or weekends.”
But the weekday period was carrying a heavier share of the load, with a 21.7-percent decline in occupancy, compared with the 15.6-percent drops during the weekends. What’s interesting—or unfortunate, according to Lomanno—is that ADR declines for group business are consistent at -5.2 percent and -5.3 percent for weekdays and weekends, respectively. STR’s president said such consistency suggests yield management systems are being applied properly.
The result has been excruciating ADR declines across the board at rates not seen for at least 20 years. During the worst of the post-9/11 U.S. downturn, rates declines on a 12-month moving average bottomed out at -4.7 percent. It took the industry six years to recover ADR on an annual, inflation-adjusted basis.
During the current crisis, rates declines have reached as far as -7.4 percent on a 12-month moving average, Lomanno said.
“On an inflation-adjusted basis, it’s reasonable to us—don’t fall over when I say this—it’s going to probably take 8 to 10 years to get room rates back to where they were in 2007.”
Relief on the horizon?
On an absolute basis, fortunately, rates will recovery much more quickly. After a 9.7-percent ADR decline in 2009, STR projected a less severe drop of 3.4 percent in 2010, according to Lomanno. The Hendersonville, Tennessee-based research firm also projected a 0.6-percent drop in occupancy and a 4-percent decline in RevPAR in 2010.
Marr foretold of an “uneven and choppy” recovery, though he expects demand to begin to crawl back up in 2010.
PwC projected average occupancy of 55.2 percent in 2009, with a slight bump to 55.8 percent in 2010. Also in 2010, the firm forecasted an average ADR decline of 1.8 percent and RevPAR drop of 0.7 percent.
All 50 markets tracked by PKF will suffer RevPAR declines in 2009, according to Mandelbaum, though most will show recovery by the second half of 2010.
And regarding supply, Ford said the industry will receive such much-needed relief for the foreseeable future.
“(Supply coming online) will bottom out in 2011 and remain low for an additional one to two years.”