As we start the new year, our new 2011 performance projections for the key metrics will no doubt be scrutinized for reasonableness and will be used as a sanity check for models in development and management offices around the industry. Inevitably the question arises how well our past forecast hit the mark and why, if at all, we over/under projected the total U.S. RevPAR number.
During the last couple of years Randy Smith and Mark Lomanno have customarily presented our data during industry overview presentations at the two main investment conferences, Americas Lodging Investment Summit, hosted by Jim Burba, and the NYU International Hospitality Industry Investment Conference. The last part of those presentations has always been the forecast of the main key industry metrics, culminating in the RevPAR forecast for the next two years.
VP of global development
In the following table I present the ALIS and NYU RevPAR forecasts given in the year, for the year, and added the actual RevPAR performance.
RevPAR % Change
As is clearly evident, the last few years our crystal ball had been somewhat cloudy, and our forecasts missed the actual RevPAR change by quite a bit. In contrast, in the years between 2005 and 2007, we were in the ballpark of the actually achieved numbers. So, what happened?
Since 2006, our forecast of new room supply has been pretty much spot on. However, in 2005 our forecast was incorrect because Hurricane Katrina destroyed so many rooms that the annual supply change actually was negative. Obviously we did not forecast negative supply growth, nor will we ever; luckily, the displacement of business from New Orleans allowed other meeting markets to increase their rates so that the 2005 RevPAR change forecast was still in the general ballpark of the actually achieved figure.
Forecasting demand changes always has been a much tougher exercise. Especially in the last few years, the continued decline in the broader economy influenced room demand to an unprecedented level, and, not surprisingly, our forecasts did not reflect the magnitude of change. Even our worst-case demand forecast of -6.6% for 2009, given during NYU of last year, did not accurately reflect the actual demand decline of -8.8%. In general the trend seems to be that we are a little bit too optimistic when forecasting demand, no matter if we forecast increases or decreases.
Interestingly, the outcome of over/under forecasts of supply and demand made our occupancy forecast directionally correct but more muted than the actually achieved change. In other words, if the actual occupancy percent change was positive, our forecast was not quite bullish enough, when the actual change was negative, our forecast was not bearish enough.
ADR forecasts have historically been a bit too timid as well. During the long-run bull market of 2004 through 2007, our forecast was traditionally a bit below what hoteliers were actually able to achieve. In other words, we trusted in the pricing power of a seller’s market but were not aggressive enough. Unfortunately, when predicting the prices during the downturn we also were not thinking that hoteliers would be quite so aggressive with their rate cutting measures, and our ADR forecast turned out to be too “rosy” (meaning: not negative enough).
Taken all that together, our RevPAR forecasts for the past five years were directionally correct with the exception of 2008 when the swift and total ADR annihilation during Q4 took everyone—including us—by surprise. The 2009 forecast underestimated the slower demand recovery at the beginning and the very sluggish rate recovery throughout the year.
Going forward our forecasts, with assistance from our friends at e-forecasting.com, will be updated much more frequently (at least quarterly, if not more often). In addition we are now offering 18-month forecasts for major markets and, of course, chain-scale forecasts. Mark and Randy and the other senior STR staff will continue to give the keynotes at the major industry events around the country, and our forecasts will continue to be one consideration when assessing industry health and what to expect in the near future.