Economic Headwinds Cloud Future PerformanceAtlanta, GA, Aug. 24, 2010– Based on the strong surge in lodging demand that occurred during the first half of 2010, Colliers PKF Hospitality Research (PKF-HR) now forecasts that the average U.S. hotel will achieve a 2.3 percent increase in net operating income (NOI) during 2010.
This follows a 37.8 percent cumulative decline in profits experienced from 2007 through 2009, and is the first annual uptick in forecasted NOI since 2007.
“The bottom-line losses suffered by hotel owners over the past two years were devastating, and the repercussions have been, and continue to be, felt throughout the financial community,” said R. Mark Woodworth, (top right photo) president of PKF-HR.
“The likelihood that this trauma is coming to an end is welcome news. With occupancy driving the growth in RevPAR in 2010, the rise in profits at this stage is somewhat underwhelming.
"However, going forward we will begin to see a more profitable formula for revenue growth as operators reclaim pricing leverage and room rates begin to rise.
"That being said, operators must pay attention to the significant increases in operating costs that we’ve consistently observed during past recovery periods.”
PKF-HR forecasts double-digit growth in unit-level NOI growth each year from 2011 through 2013.
The improved outlook for 2010 bottom-line performance is the result of increasing optimism about the top-line.
In the recently released September 2010 edition of Hotel Horizons®, PKF-HR forecasts a 4.6 percent increase in revenue per available room (RevPAR) for the U.S. lodging market in 2010.
This is the result of a projected 5.2 percent rise in occupancy, but a 0.6 percent decline in average room rates (ADR). “Our analysis confirms that the sharp rise in demand during the first half of 2010 is partially attributable to the low level of room rates,” Woodworth added.
While PKF-HR’s forecasts during the past few quarters have grown increasingly optimistic for 2010, the firm’s projections for 2011 have softened.
In the September 2010 Hotel Horizons® report, PKF-HR forecasts RevPAR to increase 5.9 percent in 2011. This compares with the firm’s 7.8 percent RevPAR forecast published in June of 2010.
“It’s not that we are becoming less bullish on 2011. It’s more that the 2010 recovery is happening at a quicker pace,” Woodworth noted.
(Hotel Radisson Los Angeles Airport, lower right photo)
For 2011, PKF-HR is projecting ADR to increase 3.8 percent. Concurrently, occupancy is forecast to grow 2.1 percent. With ADR driving revenue growth, unit-level NOI is projected to rise 10.8 percent.
“The projected 5.2 percent annual increase in occupancy during 2010 is based on the strong 7.0 percent growth in lodging demand reported by Smith Travel Research (STR) for the first half of the year, plus the modestly optimistic economic forecast prepared by Moody’s Economy.com in July of 2010,” Woodworth said.
“While our 2010 performance projection has improved over previous forecasts, we are becoming a bit more concerned about the economic environment that lies ahead." We like what we’ve seen so far in 2010, but we are starting to notice some potential economic headwinds that could pose a threat to hotel performance.”
"We have identified several factors that are a cause for concern: persistent high levels of unemployment, continued weakness in housing, airline capacity constraints, the November elections, and the tax policies that expire on January 1, 2011,” stated John B. Corgel (middle right photo) Ph.D., the Robert C. Baker Professor of Real Estate at the Cornell University School of Hotel Administration and Senior Advisor to PKF-HR.
“It is important to note that the PKF-HR positive forecasts of lodging performance include the economic forecast assumptions of Moody’s Economy.com.
"However, I must admit that our bias towards the September forecasts is slightly negative, meaning that actual results are more likely to fall short of, rather than exceed, projected results.”
To observe a complete discussion of these economic headwinds, we invite you to view a video conversation between Mark Woodworth and Dr. Jack Corgel. The video can be found at: http://www.pkfc.com/en/videos/subscribers/lodgingsinsights0810.aspx
To purchase a September 2010 Hotel Horizon® report, please visit http://www.hotelhorizons.com/. Reports are available for each of 50 major metropolitan areas in the U.S., and contain five year projections of supply, demand, occupancy, ADR, and RevPAR.
For further information, please contact:Mark Woodworth, President, Colliers PKF Hospitality Research, Tel: 404 842 1150, ext 222, Email: mark.woodworth@pkfc.com, http://www.pkfc.com/
Chris Daly, Daly Gray Public Relations, Tel: 703 435 6293, Email: chris@dalygray.com, http://www.dalygray.com/
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