The Expert: RevPAR Growth Slows to Trickle
- Nov 25, 2008
The effects of a weaker employment market on travel are adversely affecting the performance of the national hospitality sector, and primary measures of property health will continue to soften in the months ahead. Year to date, the 62.9 percent occupancy rate was down 200 basis points from the same period a year ago, while the average daily rate has increased 3.7 percent, compared with a 5.7 percent jump last year.Subdued consumer confidence, reinforced by economic uncertainty, is suppressing discretionary spending on such expenditures as travel and has contributed to a 0.6 percent drop in room demand thus far in 2008. Demand will wane further in the fourth quarter and through 2009 as greater caution grips consumers and as businesses cut travel budgets. Meanwhile, the number of available rooms, the industry’s primary measure of supply, has risen 2.5 percent this year, compared with a 1.2 percent increase in the first nine months of 2007. Supply growth has contributed to the decline in occupancy while also lowering RevPAR growth to 0.6 percent so far in 2008. Moving forward, however, difficulties in the capital markets will delay or force the cancellation of several projects, helping to relieve supply-side pressures on occupancy and RevPAR in the near term.The difficulties in the capital markets are also affecting hotel investment sales, as transaction velocity has dropped 20 percent over the past 12 months. With fundamentals on the downswing, investors will continue to demand higher first-year returns in the months ahead. Currently, cap rates average from the high-8 percent range to more than 11 percent for assets in areas with limited room-demand generators. The proliferation of new hotels during the past several months may raise concerns among prospective buyers about brand saturation in locations where supply has grown most. Nonetheless, opportunities may exist in some primary metropolitan areas to brand properties that are currently unaffiliated at some time during a projected investment-holding period, perhaps when the supply pipeline readjusts.Contact Robert Hicks at 916-677-4100 or firstname.lastname@example.org.