News for the Hospitality Executive
Peak Season Performance Peaks Interest
U.S. Hotels Enjoyed an 8.4% Increase
During 3Q10 Compared to 3Q09
After reviewing the 2010 third quarter performance data for the U.S. lodging, it is apparent that we are solidly into the recovery phase of the business cycle. According to data from Smith Travel Research (STR), U.S. hotels enjoyed an 8.4 percent increase in RevPAR during 3Q10 compared to 3Q09. This was slightly better than the 7.6 percent RevPAR growth rate forecast by Colliers PKF Hospitality Research (PKF-HR).
Of greater significance to hoteliers is the 1.6 increase in average daily room rates (ADR) during the same period. This is the first year-over-year quarterly increase in ADR for U.S. hotels since 3Q08. And, as hotel owners and operators know, ADR growth is the key to gains in profitability.
For most lodging markets, the third quarter represents the peak period of the year. Leisure travelers hit the road in July and August, while the convention season begins in September. Therefore, with occupancy and ADRs at their highest levels, the improvement in growth rates is particularly encouraging.
The overall recovery is confirmed when analyzing individual market performance, but some subtle differences in the pace of recovery do surface. During the third quarter of 2010, all 50 major U.S cities covered in our Hotel Horizons® universe achieved growth in both demand and occupancy. In fact, 21 of the 50 markets have enjoyed an increase in occupied rooms greater than 10 percent for two consecutive quarters. An increase of this magnitude and breadth has never occurred since STR began collecting data in the 1980ís.
Despite the return of travelers to the road, discounting continues to linger. In 22 of the 50 Hotel Horizons® markets, average daily room rates suffered a decline from the same period in 2009. In general, the areas that experienced a decline in ADR are smaller markets located in the midsection of the nation. Conversely, several of the major coastal gateway markets saw their average room rates rise in excess of 4.0 percent.
As previously mentioned, in the September 2010 edition of Hotel Horizons® PKF-HR forecast a 7.6 percent growth in RevPAR for all U.S. hotels during the third quarter of 2010, 0.8 percentage points less than the increase that was actually achieved. While the PKF-HR forecast of a 6.7 percent increase in occupancy was spot on, it was the ADR growth rate that exceeded expectations Ė another good sign. PKF-HRís projection of a 0.9 percent gain in ADR was surpassed by an actual increase of 1.6 percent.
During the first two quarters of 2010, it was the strong growth in lodging demand, and therefore occupancy gains, which drove the RevPAR lifts that surpassed PKF-HRís projections. Now, as ADR begins to take over as the primary driver of increased revenues, we expect significant growth on the bottom-line. The lingering question, however, is the extent to which operating costs will be contained. Historically, during the recovery phase of the lodging cycle we have seen relatively strong increase in operating expenses as business volume rises and the payroll, amenities, and services that were cut during the recession are reinstated.
The U.S. lodging industry has clearly passed through the trough of the
lodging cycle and begun its assent up the recovery curve. So far
the pace of the improved performance has surpassed expectations.
Based on PKF-HRís preliminary analysis of the latest economic forecasts
from Moodyís Analytics, it is likely that the next scheduled updates of
our Hotel Horizons® forecasts for the U.S. lodging industry will reflect
a continuation of the optimism that has taken hold during the first three
quarters of 2010.
Colliers PKF Consulting USA offers hotel appraisal and hotel valuation services, hotel market studies, hospitality litigation support, and hotel consulting services. Colliers International Hotels offers hotel brokerage and hotel transaction services. Colliers PKF Hospitality Research produces Hotel Horizons®, an econometrically based hotel forecast, BenchmarkerSM, a customized comparative hotel benchmark report, and Trends® in the Hotel Industry, a historical hotel financial publication, as well as hotel research and hotel analysis services utilizing their hotel statistics and hotel data which date back to 1936.
|Also See:||Colliers PKF Now Forecasting that the Average U.S. Hotel Will Achieve a 2.3% Increase in Net Operating Income During 2010; First Annual Uptick in Forecasted NOI Since 2007 / August 2010|