PKF Hospitality: Occupancy to Remain at Record Levels Through ’17

ATLANTA—U.S. hotel occupancy will remain at record levels through 2017, according to PKF Hospitality Research/CBRE Hotels (PKF-HR). 

In the recently released December 2015 edition of Hotel Horizons, PKF-HR forecasts that the growth in demand for lodging accommodations will exceed the change in supply during each of the next two years. The result will be a national occupancy rate of roughly 66 percent in both 2016 and 2017.

“The fundamental characteristics of the economy remain relatively unchanged, as the labor market continues to improve and GDP growth remains steady if moderate,” stated R. Mark Woodworth, senior managing director of PKF-HR. “Accordingly, our forecasts for demand and average daily rate (ADR) growth remain above the long-run average in both 2016 and 2017.

“We are not blind to current events and realize that non-economic risks do exist given the current international security environment. However, these are events which we are unable to forecast.  Based on what we do know and feel comfortable forecasting, the probability of an economic downturn in U.S. hotel industry performance remains remote,” Woodworth stated.

The projected record occupancy levels also means pricing power will remain with property managers. For 2016, PKF-HR is projecting room rates to increase by 5.5 percent, followed by an even greater 5.8 percent rise in 2017. “Given the modest growth projected for inflation, real ADRs are now returning to their previous peak,” Woodworth noted.

During historical cycles, a real ADR recovery has triggered a surge in new supply, and PKF-HR is seeing an uptick in development. National supply change increased by 1.2 percent during the third quarter of 2015, marking two consecutive quarters of supply growth exceeding one percent for the first time in this cycle. While concerning, the rate is still well below the annualized long-run average of 1.9 percent.