Mr. Woods said that over the two-year period from the beginning of 2004 to the end of 2005, Manhattan�s hotel operators will have achieved revenue per available room (RevPAR) growth that took their predecessors about five years to achieve following the economic downturn in the early nineties. "Normally, we see modest increases in RevPAR growth during the recovery phase of the hotel market cycle and more robust growth in the expansion phase," said Mr. Woods. "However, the unprecedented growth in demand has underwritten the magnitude of the turn-around and defied conventional wisdom." 

"We forecast occupancy rates to grow about a percentage point to 84.2% in 2005. Average daily rates are likely to grow dramatically by over 14% to about $230 in 2005. As a consequence, RevPAR is expected to increase by almost 16% to about $194 in 2005," said Mr. Woods

The peak RevPAR achieved in October 2000 at over $223 will likely be eclipsed this year in October, November and December. "We should remember we are talking in nominal dollars here," said Mr. Woods. "Over the past four years we have had almost 10% inflation, so the industry has a $32 gap before it approaches the level of 2000 RevPAR in real terms." "Hitting the 2000 peak, even in nominal dollars, is a major milestone however." 

"Based on the likely long-term trend of increasing real RevPAR between 1987 and 2006, 1991 still ranks as the lowest year for the Manhattan lodging market; 2003 was only marginally better from a cyclical point of view," said Mr. Woods. "Real RevPAR fell 19.8% below its long-term trend in 1992, compared with a drop of 18.5% in 2003." 

Manhattan�s lodging market is about one-third of the way up the recovery phase of its cycle. "Typically, upswings from trough to peak are longer in duration than downswings," said Mr. Woods. Manhattan�s most recent upswing, which began in 1992 and ended in 2000, lasted eight years. Its most recent downswing lasted three years. An examination of the cyclical nature of hotel market performance reveals that the average duration of the upswing for full-service hotels in the top 50 markets throughout the country is 6.6 years, with a standard deviation of plus or minus 1.7 years. In other words, there is a 68% likelihood that the average upswing will last between 4.9 and 8.3 years. The average downswing from peak to trough is 4.6 years plus or minus 1.9 years. The duration of the average cycle, from peak to peak or trough to trough, is 11.5 years plus or minus 2.1 years. 
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Email: [email protected]

Hotel Investment Management LLC is a hotel investment advisory firm that advises senior decision makers in their implementation of hotel real estate and management decisions.