By Alex Smith
HENDERSONVILLE, Tennessee—Now that STR, parent company of HotelNewsNow.com, and Tourism Economics have produced the “Market Forecast Reports” for a full year, we wanted to put together a brief summary of how reliable the reports have been for their respective markets.
The first reports were released in August 2011 and contained historical data through the second quarter of 2011. This review covers the first year of projections released in those reports (third quarter 2011 through second quarter 2012).
Although we are very pleased with the results of this analysis, we firmly believe that over time these reports will become stronger with practice, especially as our knowledge of each market grows.
STR partnered with Tourism Economics, an Oxford Economics company with a singular focus on quantitative analysis of the travel industry, to build econometric models unique to each market for these reports. Robust equations have been econometrically estimated that closely follow past movements in hotel performance as measured by STR data. These equations are used to forecast hotel performance using economic forecasts from Oxford Economics' global macroeconomic database as well as Oxford Economics' global city and region forecasts. Economic forecasts are augmented with specific intelligence to determine the additional effect on hotel demand and ADR of any events hosted within that market.
In this review, we have calculated the percentage variance for the aggregated first four quarters that were forecasted in August 2011 (third quarter 2011, fourth quarter 2011, first quarter 2012 and second quarter 2012). The variance is calculated as follows:
Percentage Variance = (Forecasted Value – Actual Value)/Actual Value*100
Therefore, positive values indicate the forecast over-predicted the performance for that metric, and a negative value indicates under-prediction.
The majority of our market projections for supply were high because supply growth unexpectedly was suppressed during the past year.
This factor combined with the under-predictions of demand in 15 markets (with Nashville, Tennessee, and Houston being the most significant) led to our occupancy forecasts being low in all but five markets. The strength of demand in the industry continues to surprise and contradict many discouraging economic indicators and expert outlooks. When these forecasts were released last year, a much greater slowdown in demand was anticipated for these markets.
Given that average daily rates are dependent on other performance factors and are very difficult to predict, we are pleased with the general accuracy of our ADR forecasts. San Francisco is the only market where the ADR forecast varied by more than 5%. The fantastic pace of rate growth that has occurred in this market was unanticipated. The markets are roughly split between being over- and under-predicted, and all have relatively low variance levels.
Finally, taking the forecasted metrics to the bottom line and looking at revenue per available room, the top 25 markets generally have outperformed expectations just as the total industry has. Our RevPAR projections for 16 markets came out below the actual results, and all of the most significant errors were in markets that have greatly overachieved. These markets include: Nashville; Oahu Island, Hawaii; Tampa, Florida; Houston; New York; and San Francisco. With the exception of San Francisco, these errors all stemmed from under-predicted occupancy, mostly the consequence of low demand forecasts.
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