Data firms differ on hotels outlook
Data firms differ on hotels outlook
29 JANUARY 2014 8:59 AM

STR projected RevPAR would inch down during 2014, while PKF expected hotel performance to continue to improve.

LOS ANGELES—Two of the big hotel data forecasters are offering differing takes on what the outlook for hotel performance will look like during the next couple of years.
During the “Numbers, numbers and more numbers” session at the Americas Lodging Investment Summit Tuesday, Jan Freitag, senior VP of strategic development at STR, said the United States’ revenue-per-available-room growth will inch down to 5.3% this year from 5.4% a year ago. The decline is expected to be steeper during 2015, at a 4.7% growth clip. STR is the parent company of Hotel News Now. 
Mark Woodworth, president of PKF Hospitality Research, took an opposite stance and projected further growth in the industry. His firm is expecting RevPAR growth of 6.6% during 2014 followed by a further 7.5% increase in RevPAR during 2015.
“I happen to think it’s going to be a terrific year this year,” Woodworth said. He noted that profits have increased by more than 10% since 2011, a trend expected to continue through at least 2015.
Freitag pointed to a number of variables that could impact 2014 performance for hotels. For one, STR is expecting growth in average daily rate during 2014 at 4.2%, about on par from the 3.9% recorded during 2013. ADR growth during 2015 is expected at 4.2%.
“We’re not seeing any more catalysts for demand growth,” Freitag said.
Also, Freitag said group demand growth has slowed as well. Group demand was down by 0.4% during 2013, while group ADR grew by 3.5%. 
“The demand for group rooms has basically stalled out,” he said.
Freitag also mentioned that the share of transient occupancy has grown, increasing to 63.3% in 2013 from 61.9% a couple years earlier in 2011. Transient rate has not been as strong, however, which means hoteliers might be leaving some money on the table, he said.
The overall economy might work against hoteliers as well. During a keynote address on Monday, Kevin M. Warsh, former member of the board of governors with the Federal Reserve System from 2006 to 2011, cast a restrained outlook on the health of the U.S. economy. While there’s a lot of hope the U.S. economy might have a breakout year during 2014, he said he isn’t sure that explosive growth will take place.
“We have to balance that hope (of fast economic growth) with experience,” he said, saying there are a myriad of risks, including unemployment growth and the misapplication of federal economic policy, that could disrupt the recovery.
“We have not had as much dynamism in the economy as we should,” he added.
Growth forecast
Woodworth said the optimism his firm has in the hotel industry’s future stems from, in part, restrained supply and increased pricing power in the hands of hoteliers. In addition to RevPAR growth, Woodworth said occupancy should increase to 63.2% in 2014 from 62.3% in 2013 while ADR grows by 4.8% in 2014 from 3.9% in 2013. 
And in 2015, PKF is forecasting occupancy of 64.4% and ADR growth of 5.6%.
He said demand has recovered in 44 of the 50 markets PKF tracks while supply remains below the long-run average in 47 of 50 markets. Further, occupancy was above the long-run average during 2013, he said.
“When that happens, pricing power moves firmly in the hands of the seller,” he said.
He said new construction is not a near-term threat. Urban locations reached record occupancy during 2013, and airport locations are expected to see similar record levels during 2014.
“It’s very clear looking at data that room rates have to get back to previous levels before we see any meaningful construction,” Woodworth said. He added that 2016 will be the year to be concerned about new supply.
Woodworth said the recovery still has runway left in it. Real ADR and RevPAR are not yet back to previous peak and are now 90% of previous peak. 
The deals outlook
Turning the page to deals, the transactions market also saw a banner year during 2013, said Suzanne Mellen, senior managing director of consulting and valuation at HVS. She said price per key of approximately $140,000 in 2013 beat the previous record of $132,000 in 2006. Total deal volume of about $25 billion was still below prior peak of $33 billion during 2006, however.
2013 saw the reemergence of the mega deal, with several high-profile, high-priced deals. Among them were three $1-million-per-key deals (the Park Lane in New York and Langham Place in New York and the Calistoga Ranch in California), along with the $774-million deal for the Grand Wailea, which Mellen said is reportedly the largest price paid for a single asset.
“These are the kinds of sales that have really driven up the volume,” she said.
Looking forward to 2014, Mellen said she expects to see a similar strong year as was witnessed during 2013.

No Comments

Comments that include blatant advertisements or links to products or company websites will be removed to avoid instances of spam. Also, comments that include profanity, lewdness, personal attacks, solicitations or advertising, or other similarly inappropriate or offensive comments or material will be removed from the site. You are fully responsible for the content you post. The opinions expressed in comments do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please report any violations to our editorial staff.