Second quarter 1998 industry occupancy was 67.5 percent, a decline of 0.7 percent versus the same period in 1997. Average room rate gained 4.7 percent to $78.30 in the quarter and room revenue per available room (RevPar) -- the combination of occupancy and average room rate and a key industry productivity measure --increased nearly 4.0 percent to $52.87.

The occupancy decline was caused by the increasing disparity between the rates of growth in supply and growth in demand.

Industry room supply (room nights available) increased by over 3.8 percent in the quarter, slightly higher growth than the 3.4 percent supply growth in second quarter 1997. Demand growth (room nights sold) increased 3.1 percent, up from second quarter 1997 demand growth of 2.4 percent Room revenue grew almost 8.0 percent in the quarter, a decrease from 9.3 percent change the same quarter 1997.

In the first half of 1998, industry occupancy declined 0.6 percent to 63.7 percent, but average room rate grew 5.0 percent to $78.90. RevPAR gained 4.3 percent to $50.26. First half industry occupancy declined for the second consecutive year.

Industry room demand grew 3.2 percent in the first half which was higher than the 2.4 percent demand growth rate in the first half of 1997. However, room supply increased 3.9 percent, accelerating from supply growth of 3.3 percent in first half 1997.

Among the top twenty-five largest U.S. hotel markets, the New York metro area continued to be very strong in the first half of 1998. Demand increased 3.4 percent versus prior year and occupancy reached over 80 percent. Room rates increased over 9.4 percent and hit nearly $171, the highest absolute room rate among the twenty-five largest hotel markets. RevPAR gained nearly 13 percent. San Francisco occupancy reached over 77 percent and room rates grew 9.5 percent to over $126.

"Supply growth is expected to exceed demand growth in many markets for the rest of the year," said Randell A. Smith, CEO of Smith Travel Research. "Therefore, the industry will continue to experience slightly declining occupancies. In addition, we expect to see a slowing rate of increase in both average room rates and RevPAR." Smith adds that "despite these weakening 'top-line' performance measures, the industry is expected to set another profitability record with pre tax income estimated at $20 to $22 billion in 1998, which is $3 to $5 billion more than 1997."

Smith Travel Research -- the leader in lodging industry tracking and analysis---provides regular industry reporting to all major U.S. chains, many Independent hotels, and a variety of management companies and hotel owners. The company also tracks lodging industry performance in Canada and Mexico.