By year-end 2015, the U.S. lodging industry will have surpassed its previous record annual occupancy level, and exceeded its pre-recession ADR level on a real (inflation adjusted) basis. Given the limited amount of new competition entering the market, plus favorable economic forecasts, conditions are ripe for all hotel owners and operators to achieve significant gains in both revenues and profits in the next few years.
Up to now, “recovery” has been a word almost exclusively used by owners and operators of upper-priced hotels in gateway markets. However, evidence of the spread of favorable market conditions can be found when analyzing PKF HR's September 2014 Hotel Horizons market forecasts.
For 2015, PKF is projecting a RevPAR increase of 6.3 percent for hotels located outside the nation’s 55 largest markets. This is just short of the 6.7-percent RevPAR growth rate projected for the 55 major markets. Occupancy for both groups of markets is forecast to increase by 0.9 percent next year, so the difference in RevPAR gain can be attributed to the greater projection of ADR growth for the major markets (5.8 percent vs. 5.4 percent).
Among the 55 largest markets, we are observing subtle shifts in performance and development activity that indicate the strong market conditions are spreading from the primary markets to the secondary markets. Here's the outlook for 2015.
SUPPLY AND DEMAND
New York City, Austin, Texas and Pittsburgh, Pa., will experience the greatest increases in supply in 2015. During the year, the inventory of available rooms is projected to rise by 7.0 percent in New York, 6.0 percent in Austin and 4.6 percent in Pittsburgh.
The coastal gateway markets of Miami and Seattle will also see significant gains in supply in 2015, as will the secondary cities of Raleigh-Durham, N.C., and West Palm Beach, Fla.
Unlike their colleagues elsewhere in Texas, Fort Worth hotel managers will face a limited amount of new competition in 2015. The supply of hotel rooms in that city will rise by just 0.3 percent in 2015.
Salt Lake City and San Jose-Santa Cruz, Calif., are two markets forecast to enjoy significant growth in demand, with just modest increases in supply. High occupancy levels, and the resulting capacity restraints, will limit demand growth in San Francisco, Oakland and Oahu. Sluggish local economics will suppress demand growth in Tampa, Fla., Norfolk-Virginia Beach, Va., and Phoenix.
OCCUPANCY, ADR AND REVPAR
Change in supply is the primary factor influencing the 2015 forecasts of change in occupancy. Limited supply growth will result in strong gains in 2015 occupancy for the Tucson, Philadelphia, and Fort Worth markets. On the other hand, significant supply growth has led to projections of declining occupancy levels in the cities of Austin, Seattle, Houston and Raleigh-Durham.
With occupancy levels in excess of 73 percent, hotels in the cities of Nashville, Tenn., San Jose-Santa Cruz, San Francisco, Oakland and Denver are all forecast to enjoy growth in ADR of greater than 8.0 percent in 2015.
While low, the ADR gains projected for hotels in Pittsburgh, Philadelphia and Albuquerque, N.M., will all exceed the 2.2-percent forecast for inflation in 2015. Lagging in expected ADR growth for 2015 are the markets of Washington, D.C. and Norfolk-Virginia Beach. Hotels there are suffering from flat, or declining, federal per diem hotel room rates.
PROSPERITY IS PERVASIVE
Up to now, the economic recovery has mostly impacted high-income, highly educated and high-skilled people. This has led to an imbalanced pattern of lodging recovery that has favored upper-priced properties and large coastal markets. Now, with employment levels on the rise across all employment sectors, we are seeing a commensurate uptick in performance across the entire U.S. lodging spectrum.
PKF-HR always alerts its clients and other industry participants that hotel performance will vary by property type and geography. However, compared to previous forecasts, the projections of positive performance in our September 2014 Hotel Horizon reports appear to apply to almost all aspects of the U.S. lodging industry.