March 14, 2013

US hotels sacrifice a few points of occupancy in favor of raising room rates


No hotelier wants to see their revenue growth slowdown, but there is good news when looking at the RevPAR components. PKF-HR is forecasting the average occupancy rate for U.S. hotels to increase by 1.0 percent in 2013, while average daily rate is expected to rise by 5.0 percent.

Despite news of "fiscal cliffs" and "sequesters" coming out of Washington D.C., the U.S. lodging industry is forecast to continue to achieve strong gains in both revenue and profits in 2013. According to the recently released March 2013 edition of Hotel Horizons®, PKF Hospitality Research, LLC (PKF-HR), is projecting that U.S. hotels will enjoy a 6.1 percent increase in revenue per available room (RevPAR)for the year, along with a 10.2 percent boost on the bottom-line net operating income.

The 6.1 percent pace of RevPAR growth forecast for 2013 is less than the 6.8 percent increase achieved in 2012. However, to put it in perspective, the 2013 growth rate is more than double the long-run average of 2.9 percent.

No hotelier wants to see their revenue growth slowdown, but there is good news when looking at the RevPAR components. PKF-HR is forecasting the average occupancy rate for U.S. hotels to increase by 1.0 percent in 2013, while average daily rate (ADR) is expected to rise by 5.0 percent. The $111.40 national ADR level projected for 2013 will be greater than the pre-recession peak of $107.42 achieved in 2008 in nominal terms.

"In several segments and cities, hotels are at the point when it may be more profitable to sacrifice a few points of occupancy in favor of raising room rates," said Woodworth. "Occupancy rates for luxury, upper-upscale, and upscale hotels are forecast to be in excess of 70 percent from 2013 through 2017, and 15 of the 50 major U.S. markets that we track have already reached their pre-recession peak levels of occupancy. Lofty occupancy levels limit the potential for demand growth, but the scarcity of available rooms provides management with the leverage needed to increase prices."

Another benefit of raising room rates is the positive impact on hotel profits. After the 5.0 percent growth in ADR forecast for 2013, PKF-HR is projecting average room rates to grow at an even greater rate through 2016. "We are in the middle of a five year period where industry fundamentals are extremely solid: supply growth will be below average for the foreseeable future, which will lead to revenue and profit growth well in excess of the norm," Woodworth noted.

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