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PKF Survey Forecasts Brighter Outlook for Hospitality Industry
By Claudette Covey
Following on the heels of PwC's forecast of slightly stronger gains in hotel demand and pricing, another consulting firm released a report of a brightening hospitality picture. Despite tepid economic indicators, record numbers of guests continue to occupy U.S. hotel rooms, according to the September 2012 edition of Hotel Horizons published by PKF Hospitality Research, LLC (PKF-HR). The company is forecasting that on any given night in 2012 nearly 3 million of the nation's 4.8 million hotel rooms will be occupied. This is 5.6 percent greater than the levels of lodging demand accommodated in 2007, the year prior to the recession.
"Lodging industry participants continue to be pleasantly surprised with the sustained levels of hotel room demand growth," said PKF-HR President R. Mark Woodworth. "Bucking all apparent economic trends, lodging has been a leading industry during this sluggish economic recovery," he said, adding that the current growth differs from past recovery periods when hotels typically lagged behind other industries.
"Our analysis of lodging performance the past three to four years reveals that history is not always the best predictor of future behavior," said Woodworth. "Historically, we could rely on changes in employment, income, and gross domestic product (GDP) to project the direction of lodging demand."
The rosier hotel picture comes with some caveats, according to PKF-HR. The company said some markets are lagging, and cautioned that the hotel industry is a "street corner business." Twelve markets across the country still are renting fewer rooms than they did prior to the recession. Lagging the most in accommodated demand are Tucson, Ariz.; West Palm Beach, Fla.; and Atlanta. Other cities are Albuquerque, N.M.; New Orleans; Sacramento, Calif.; Oahu, Hawaii; Phoenix; and Tampa, Fort Lauderdale, Orlando and Jacksonville, Fla.
The reasons why these 12 cities are lagging vary, according to PKF-HR. Tucson is a market dependent on group and leisure travelers, two segments that have trailed behind the growth in corporate demand. In the case of West Palm Beach, the surge in travel from South America that has supported hotels in southern Florida has yet to wend its north, the company said. "In Atlanta, weak employment, especially in the outlying suburban areas, has impeded the recovery of the lower-tier properties located in those sectors of the city," Woodworth noted.
Based on performance data through June of 2012, provided by Smith Travel Research (STR) and Moody's Analytics' July 2012 domestic economic forecast, PKF-HR now is forecasting that RevPAR in the U.S. will increase by 6.7 percent this year. (PwC predicted RevPAR predicted to increase to 7.2 percent in 2012 and 5.6 percent in 2013.)
The preceding RevPAR forecast is greater than the 5.8 percent RevPAR growth rate presented in the June 2012 edition of Hotel Horizons. "The main reason for the improved annual forecast is the stronger-than-expected performance of the market in the second quarter of the year," said Woodworth. During the second quarter of 2012, STR reported that the RevPAR for U.S. hotels grew at a pace of 7.9 percent, a full two percentage points greater than our forecast of 5.9 percent. "Robust demand growth was the primary reason for the superior gain in RevPAR," he said.
Despite the U.S. hotel market's strong performance during the first half of this year, PKF-HR believes that the pace of growth will moderate during the second half of the year. "We attribute this modest slowdown to less favorable prior-year comparisons and greater uncertainty about the strength of the economy," said John B. (Jack) Corgel, the Robert C. Baker professor of real estate at the Cornell University School of Hotel Administration and senior advisor to PKF-HR. "Because market performance is getting better at an accelerated pace this year, we have trimmed our RevPAR estimates for 2013 to 6.2 percent, slightly below our previous estimate of 6.6 percent."
Along with its improved forecast for RevPAR, PKF-HR boosted its projections for growth in unit-level hotel profits (the net operating income achieved at an average hotel, as opposed to the overall profits of the entire lodging industry). PKF-HR is projecting unit-level net operating income (NOI) to increase by 12.6 percent in 2012, up from its June forecast of 9.3 percent.
Typically, hotel profit growth expectations are enhanced when average daily rate begins to drive revenue gains, the company said. In 2012, however, PKF-HR's increased outlook for RevPAR change is driven by the stronger than expected gains in occupancy. Historically, occupancy driven RevPAR gains would not lead to projections of significant improvement on the bottom-line, according to PKF-HR.
"Just as history cannot explain the recent growth in lodging demand, it has failed as an indicator of changes in hotel profits," said Woodworth. "We continue to be impressed with the job management has done controlling expenses and converting the extra guest counts into profits. PKF-HR is forecasting unit-level profits to increase by 10.9 percent in 2013 and 16.1 percent in 2014. We expect cost controls will help convert future growth in revenue to double-digit growth in NOI."
Source: Travel Pulse
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