News for the Hospitality Executive
PKF Revises Forecast to Reflect Acceleration
of Economic Downturn
|ATLANTA, Ga., October 28, 2008 – The downward gravitational
pull on the national economy resulting from extraordinary financial events
currently playing out on Wall Street and in Washington has prompted PKF
Hospitality Research (PKF-HR) to revise downward its hotel industry forecast
for 2009 issued September 2008. The company is now expecting RevPAR
and profit declines of 4.3 percent and 7.9 percent, respectively, for U.S.
hoteliers in 2009, according to its updated forecast.
The new forecast reflects research reported by Smith Travel Research (STR) in September that projects a 5.9 percent drop in occupancy and weak average daily rate growth, which PKF believes is just the beginning of an even greater protracted decline expected for the industry. Mark Woodworth, president of PKF-HR, in a special update released today, noted that “the speed and severity of the downturn in the national economy, both that which has already occurred, and that which is anticipated for the year ahead, has vastly exceeded our previous expectations. Thus, for only the second time since the events of 9/11, we feel that a mid-term update is warranted.”
The projected deterioration in industry performance will be driven primarily by a 1.5 percent decline in 2009 lodging demand, aggravated by a 3.0 percent rise in supply. Given the increased competitive market conditions, U.S. hoteliers will only be able to raise their room rates by a mere 0.1 percent next year. The net result will be a 4.3 percent drop in RevPAR. PKF-HR now forecasts that the average U.S. hotel will suffer a 7.9 percent decline in profits in 2009.
These findings are included in a special update of the third quarter 2008 edition of Hotel HorizonsSM released in September 2008, and were driven by the recent downgrade from Moody’s Economy.com (Moody’s). Hotel HorizonsSM is PKF-HR’s quarterly forecast report for the U.S. lodging industry. The updated forecast was prepared by PKF-HR in response to recent unprecedented economic news and events.
The magnitude of the decline in hotel profits forecast by PKF-HR as recently as September has more than doubled since then. “Our outlook for the U.S. lodging industry has deteriorated dramatically in a fairly short period of time,” Woodworth said. “We were pessimistic this past summer when we forecast a 3.0 percent decline in profits. Our view now appears optimistic as we consider the revised economic environment being painted for the remainder of 2008 and into 2009. It’s not the depth of the upcoming lodging industry recession that concerns us. It is how fast market conditions have weakened, and the rapidly changing outlook for the nation’s economy. Uncertainty is the greatest bugaboo. One need look no further than the recent performance of the stock market to realize the level of uncertainty, and resulting volatility, that exists today.”
PKF-HR’s Hotel HorizonsSM forecasting model is driven by historical hotel performance data provided by STR and economic forecasts produced by Moody’s. During the month of October, Moody’s adjusted their economic forecasts for 2009. The revisions encompass a 0.9 percent downward adjustment in total personal income, along with a 1.2 percent downward adjustment to employment. The Hotel HorizonsSM model relies on employment and income as the two primary drivers of lodging demand.
Mark Zandi, chief economist and co-founder of Moody's Economy.com, was recently reported as saying, “The job market has eroded measurably, and industrial production has weakened sharply in the last couple of months. Those are the two key things. Retail sales have also sharply weakened.”
Jack Corgel, the Robert C. Baker Professor of Real Estate at the School of Hotel Administration at Cornell University and senior advisor to PKF-HR, commented on the current industry outlook. “In the current environment, all prices are falling: room rates, other revenues, profits and, ultimately, values” Corgel noted. “The decline in profits, combined with the scarcity of debt and overall level of market volatility, has clearly created downward pressure on asset values. These are conditions that will likely persist well into 2010. That being said, savvy investors and opportunistic lending sources will emerge in the near term, and money will be made.”
New York Down, But Not Out; All Markets to Lose RevPAR
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