RevPAR Growth Anticipated Into 2012: PwC

NEW YORK—PricewaterhouseCoopers US latest forecast shows the lodging industry recovery is expected to continue at a solid pace in 2011, driven by balanced growth in industry occupancy and ADR.

As a result of strong demand trends in the initial months of 2011 and delays in expected ADR gains, the underlying sources of RevPAR growth have shifted, with occupancy and ADR now expected to contribute equally to a 7.6% increase in RevPAR in 2011, according to PwC. In 2012, strengthening ADR recovery is expected to account for a greater share of an approximate 7% RevPAR increase, a factor that could lead to improved hotel profitability, PwC added.

PwCs outlook is based on an updated forecast from Macroeconomic Advisers, LLC, which expects economic growth to regain traction in second-half 2011. According to this forecast, temporary factors, including inclement weather conditions and reduced defense spending that contributed to slower-than-expected economic growth during the initial months in 2011, are expected to unwind, supporting stronger growth in the second half of the year. This combined with sustained business investment and improving consumer spending, is expected to result in a 3.2% increase in real gross domestic product in 2011, according to the forecast.
While lodging demand growth is expected to continue in 2011, growth in lodging supply is expected to remain subdued, resulting in continued improvement in the operating performance of existing hotels, according to PwC. Hotel construction activity in 2010 slowed to levels not seen since the early 1990s, with the ratio of new hotel construction starts to existing supply averaging less than 1%. This slowdown is expected to keep the number of new hotel rooms under check, with lodging supply increasing by only 0.7%in 2011, significantly below the long-term average of 2.1%, according to PwC. As a result, occupancy levels are expected to increase to 59.8%in 2011. Increased confidence in hotel pricing is expected to result in an ADR increase of 3.7% in 2011, followed by a further 5.5% increase in 2012.