Hospitality Research Group Lowers RevPAR Outlook for U.S. Hotels in 2008

The increasingly sluggish U.S. economy is likely to lead to lower RevPAR for hotels this year, according to PKF Hospitality Research in Atlanta, which changed its 2008 forecast to reflect the steady drumbeat of bad news.The research group said that it has lowered its 2008 forecast for revenue per available room, or RevPAR, from up 4.5 percent to a below-average 3.0 percent because of the declining economic fundamentals. The good news is that the group expects the decline in RevPAR to be short-lived.“When looking at 2008, we believe that the U.S. hotel owners and operators will struggle to grow their revenues and profits, but market conditions will not be as damaging as we saw back in 1991 or 2001,” Mark Woodworth, PKF-HR president, said in a release.PKF is forecasting demand for lodging to inch up 0.9 percent in 2008, half of the long-term annual average, but still a net gain for the year. Robert Mandelbaum, PKF-HR’s director of research information services, told CPN today they are forecasting 6 percent growth in RevPar for the first quarter. He said hotels would start to see the effects of the slowdown in the second and third quarters. Both Woodworth and Mandelbaum anticipate seeing a turnaround by the first quarter of 2009.Markets expected to see the biggest drops in RevPar are those that have seen an increase in new hotel construction. The firm estimates that a net count of 115,000 new hotel rooms will become available this year. “The increase in supply we are observing in 2008 and into 2009 is related to hotels begun prior to the onset of more restrictive lending practices,” Woodworth noted.“Unfortunately their timing of entry into the market coincides with the recession and the recession has the effect of tamping demand growth,” Mandelbaum said today.He said markets with increased supply this year will be most affected, including San Antonio and Fort Worth, both in Texas, and Jacksonville, Fla.Five markets expected to weather the year the best are Oahu, Hawaii; Los Angeles; New York City; San Francisco and Los Angeles, primarily because they have large numbers of foreign visitors who are flocking to the U.S. to take advantage of the U.S. dollar’s decline. They are expected to have occupancy above the 70 percent level, down slightly but still strong. New York City and San Francisco are forecast to have occupancy above 75 percent, Mandelbaum stated.  “They are going to be hurting a little bit, but still retaining good performance levels,” he said.Despite the increased competition in some markets and lower occupancy levels, PKF-HR is forecasting average daily room rates to increase above inflation rates. “We are forecasting room rates to rise 4.7 percent in 2008. This exceeds both the 2.7 percent projected pace of inflation for 2008, and the 3.5 percent long-term average annual change in room rates,” Woodworth said in the release.PKF-HR expects hotels that fall into the Midscale without Food and Beverage segment to achieve the greatest increases in revenue this year, an estimated 3.4 percent increase. “Modest room rates will be attractive to travelers looking to control their travel budgets. In addition, the limited scope of operations makes these properties less vulnerable to increases in labor and commodity costs,” Woodworth said.The research firm is forecasting a 3.8 percent decline in occupancy at luxury hotels this year, but noted that an anticipated 5.8 percent increase in average daily room rates should offset that decline.