PKF Report Sees Occupancy Back to Pre-Recession Levels
Tuesday March 25th, 2014 - 8:48AM W
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NEW YORK—Just released data by PKF Hospitality Research, LLC’s "Hotel Horizons" forecast report indicates the U.S. hotel occupancy rate will recover to pre-recession levels in 2014.
According to Smith Travel Research, the long-run average annual change in supply has been 2%. PKF-HR is not forecasting national annual supply growth to exceed that level until 2017.
The forecast percent changes in supply are lower than historical averages, as are the actual counts of new rooms entering the market. During past expansions, PKF-HR has seen three to five consecutive years of 100,000 or more net new hotel rooms entering the market. PKF-HR’s current supply forecasts for the next three years are below that threshold.
The model PKF-HR has developed to forecast supply incorporates several industry performance and economic variables. One of the key inputs is inflation adjusted pricing or real ADR. Because of the discounting that occurred during the recession, real ADR is not projected to reach pre-recession levels until beyond 2015, thus suppressing the financial feasibility of new development projects in the near term.
Based on the Hotel Horizons market forecast, PKF-HR is projecting 12.7% increase in unit-level hotel profits (NOI) this year and another 14.5% in 2015. This will cap a five-year run of double-digit gains on the bottom-line, a span not seen since the 1970s, according to the report.
While supply growth is limited on a national level, PKF-HR indicated some markets across the U.S. are seeing meaningful increases in new competition. Over the next two years, the inventory of hotel rooms in New York, Austin, Nashville, Pittsburgh, West Palm Beach, and Miami are all projected to increase in excess of 4%, it said.
According to PKF-HR, another difference between the current cycle and historical patterns are the types of hotels being built during this recovery. In the past, lower-price, limited-service hotels were typically the first properties to be built following a recession, because they were the most affordable to construct. Now, the greatest development activity in the upper-priced segments, said PKF-HR.
Among the chain-scales, the greatest development activity is occurring in the upscale, upper-upscale and upper-midscale segments, the report noted. The upscale and upper-midscale categories contain most of the select-service, boutique and extended-stay brands that are popular with developers, lenders and consumers.
PKF-HR is forecasting the number of accommodated room nights in the U.S. to increase by 2.6% in both 2014 and 2015. With demand growth outpacing supply, the national occupancy level will continue to increase through 2015, resulting in six, consecutive years of gains in this metric, it said.
PKF-HR is forecasting ADR to increase by 4.9% in 2014 and another 5.7% in 2015.
Tags: PKF-HR • occupancy • Hospitality •
The theme of this year’s ALIS conference was “Don’t Worry, Be Happy.” But, lets face it, there are always going to be some people who aren’t happy unless they are worried about something—whether it’s the Fed potentially raising interest rates or that the price of oil is now too low, threatening to cripple the economies of some foreign nations.