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STR revises 2008, 2009 and 2010 US Hotel Industry Projections

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Smith Travel Research has revised its 2008 and 2009 forecasts as well as its projections for the U.S. hotel industry’s performance in 2010.

“We look for things to get tougher before they get better,” said Randy Smith, CEO of STR. “We’ve had an entire year in which we’ve had a cheap dollar fuelling more international visitors, and New York to date has had another good year. We expect those two things to level, so two of the things that have been good for the U.S. lodging industry aren’t going to be there in the foreseeable future.”

The revised 2008 forecast includes the following:
• a 3% drop in occupancy from year-end 2007 to 61.2%;
• a 3.4% increase in average daily rate average from year-end 2007 to $107.44;
• a 0.4% increase in revenue per available room from year-end 2007 to $65.75; and
• a 2.5% increase in supply and a 0.5% decrease in demand.

Mark Lomanno, president of STR, said one encouraging sign for the industry is that despite the turbulent economic environment expected for the next two years, ADR growth should remain in positive territory.

“What is different this time than with the last two downturns is hotel operators are less inclined to give rate away,” Lomanno said. “They have learned that holding rate is important for their business in both the short and long-term.”

For 2009, STR projects:
• a 3.5% year-over-year decline in occupancy to 59.1% - the lowest level since 2003, when it was 59.2%;
• a 1% year-over-year increase in ADR to an all-time industry best of $108.52;
• a 2.5% year-over-year decline in RevPAR to $64.10.
• a 2.4% year-over-year increase in supply and a 1% decrease in demand.

Smith said that on the development front, the opposite of what occurred during 2008 will happen during 2009.

“In 2008, the increases in supply built to a crescendo as the year went on,” Smith said. “The deeper we get into 2009, the fewer new hotel rooms we will see enter the industry.”

Lomanno said development pipeline attrition will be higher than normal - even with projects that have broken ground - because of the continued tightness in the financial markets.

For 2010, STR projects:
• a 0.6% year-over-year decline in occupancy to 58.7%;
• a 2.1% year-over-year increase in ADR to a record $110.80;
• a 1.5% year-over-year increase in RevPAR to $65.06; and
• a 1.2% increase in supply and a 0.6% increase in demand.

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