RevPAR to Spring Back by 2013

Hospitality has been among the most hard-hit sectors during the commercial property industry’s current slump. But according to a pair of new reports, a bounce back is only a few years away.But for now, economic woes darken the doors of the hospitality industry, with RevPAR dropping from 2007 to 2008 in all but three of 25 markets surveyed by Marcus & Millichap Real Estate Investment Services. On the bright side, another report, this one from Jones Lang LaSalle Hotels, anticipated that RevPAR is expected to bottom out in 2010, an indicator of upward momentum on the horizon. JLL’s  five-year forecast indicated that RevPAR will reach $68.28 in 2013, exceeding the previous peak achieved in 2007. The firm expects U.S. RevPAR to decline 12.1 percent this year, comprised of a 7.4 percent decline in average daily rate and a 5.1 percent drop in occupancy/ However, JLL Hotels indicators show gradual increases in both occupancy and ADR will contribute to RevPAR growth and a return to a higher volume of hotel asset transactions in the coming years. But for the moment, the recession continues to erode room demand, forcing hotel owners to increasingly consider lowering their average daily rate, a strategy that will put downward pressure on RevPAR, the Marcus & Millichap report stated. JLL Hotels stated that of the six metropolitan areas analyzed, New York and Los Angeles are expected to record further RevPAR declines in 2010, at 6.9 percent and 1.4 percent, respectively. In Chicago, Miami, San Francisco and Washington, D.C., RevPAR growth is expected to return in 2010. Those forecasts fall in line with what Robert Hicks, national director of the Marcus & Millichap’s national hospitality group, said in the firm’s first quarter update. Of the nation’s 25 largest hospitality markets, only New Orleans, which bounced back from Hurrican Katrina’s drag on demand, Houston and San Francisco saw improved performance from 2007 to 2008. The latter two markets greatly benefited from hurricane-related demand as people displaced from their homes sought out shelter in hotels .  For hotel investors, the good news is that there will be significant attrition to the supply pipeline and a reduced number of new rooms are scheduled to be delivered in 2009 and beyond. The number of hotel projects in the planning stage declined by 10 percent from January to March, illustrating the elevated attrition rates in the market, according to the JLL Hotels report.