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| NEW YORK, NY - July 6, 1998-- Widespread fears among lodging
industry investors, analysts, executives and others about overbuilding
in the lodging industry are unjustified for the foreseeable future, according
to the Lodging Research Network (www.lodgingresearch.com),
the comprehensive Internet-based resource for lodging industry data and
information from PricewaterhouseCoopers.
While the lodging industry will start work on 147,700 new rooms in 1998, 70 percent above the 25-year average of 86,915 room starts per year, lodging industry fundamentals should provide excellent returns on overall construction investment in 1998, 1999 and 2000, years the Lodging Research Network predicts will bring record profits for the hotel industry. "Certainly, construction is at near-record levels," observes Bjorn Hanson, Ph.D., New York-based chairman of the PricewaterhouseCoopers lodging and gaming group. "But one could only use the term 'overbuilding' if lodging industry profits were projected to decline to a level resulting in a return inappropriate for the risk of the investment. This will not occur through 2000, barring an unforeseen economic disruption," he adds. The lodging industry will post record profits of $17.6 billion in 1998, according to the Lodging Research Network. Indeed, the industry will enjoy record profits each year through 2000. U.S. lodging companies will post profits of $19.2 billion in 1999, a 9.1 percent rise from 1998. In 2000, the industry will experience profits of $21.0 billion, a 9.4 percent rise from the year earlier. Behind The Numbers Fueling the rise in hotel industry profits will be consistent growth in demand for U.S. hotel rooms, the Lodging Research Network says. Demand will rise 2.8 percent in 1998, and will increase more modestly thereafter: 2.0 percent in 1999 and 2.3 percent in 2000. Consistent demand will allow hoteliers to raise average daily room rates (ADR) through 2000, although at a moderating pace. ADR will rise 5.0 percent this year, 4.6 percent in 1998 and 4.0 percent in 2000. And Construction Itself Will Cool The rapid pace of U.S. lodging construction will begin to slow ahead, according to the Lodging Research Network. Room starts will drop from 147,700 new room starts in 1998 to 121,400 room starts in 1999, a 17.8 percent decline. Overall, the U.S. will experience a 3.5 percent net increase in its supply of hotel rooms in 1998, but supply will rise more slowly thereafter: 3.4 percent in 1999 and 2.8 percent in 2000. These PricewaterhouseCoopers figures take into consideration annual room completions and annual rooms removals from supply. The added rooms will prompt modest declines in hotel occupancy rates, from 63.9 percent this year to 62.9 percent in 1999 and 62.5 percent in 2000, according to the Lodging Research Network. A Soft Landing for Most "Although the lodging industry will experience occupancy declines and slower ADR and profit growth, this will not be an industry in trouble," Hanson says. "Supply and demand trends are reasonably aligned, and if anything, the future will bring a soft landing for the U.S. hotel industry," Hanson says. Still, four out of five hotel segments -- the upscale, midprice, economy
and budget segments -- will experience increases in revenue per available
room (RevPAR) less than the rate of inflation in 1999, the Lodging Research
Network says. Only the luxury segment, with a year-on-year RevPAR increase
of 5.1 percent in 1999, will outpace inflation, projected to be 2.8 percent
next year.
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