As Economy Gains Momentum, Lodging Recovery Continues with Strong Room Rate Gains

Jan 28, 2014 No Comments by

NEW YORK, Jan. 28, 2014 /PRNewswire/ — As economic growth strengthens, PwC US anticipates continued momentum in travel activity to boost revenue per available room (“RevPAR”) in 2014. An updated lodging forecast released today by PwC US shows the lodging cycle in a favorable stage, with above average occupancy levels and demand growth that continues to outpace hotel openings. As a result, accelerating growth in average daily rate (“ADR”) is expected, as revenue management gains traction, resulting in RevPAR growth of 6.0 percent in 2014.

The updated estimates from PwC US are based on a quarterly econometric analysis of the lodging sector, using an updated forecast released by Macroeconomic Advisers, LLC in January and historical statistics supplied by Smith Travel Research and other data providers. Macroeconomic Advisers expects real gross domestic product (“GDP”) to increase 2.6 percent in 2013, and accelerate to 3.1 percent growth in 2014, measured on a fourth-quarter-over-fourth-quarter basis.

Our updated lodging outlook incorporates clearer macroeconomic context and recent hotel performance – strong demand growth in the fourth quarter, albeit with somewhat lower ADR. Based on this analysis, PwC US expects lodging demand in 2014 to increase 2.4 percent, which combined with still-restrained supply growth of 1.0 percent by year-end, is anticipated to boost occupancy levels to 63.2 percent, the highest since 2006. Hotel construction activity is rebounding from a low base, but with fourth quarter room starts up solidly (44.1 percent ahead of prior year), the pipeline for 2015 openings is expanding. Hotels in the luxury, upper upscale and upscale chain scales have recovered occupancy levels more quickly and are now experiencing greater gains in ADR. In particular, luxury hotels are on track to reach 75.0 percent occupancy in 2014, and upper upscale hotels are anticipated to benefit from a gradual recovery in group activity and reach 72.7 percent.

“With the economic environment improving, US lodging recovery is now on solid footing,” said Scott D. Berman, principal and U.S. industry leader, hospitality & leisure, PwC. “While the demand-supply balance remains favorable this year, the next phase of the cycle will be marked by a gradual return of new lodging supply, as investors and developers look to deploy capital in this sector.”

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