It is now July, and most hotel managers are in the initial stages of preparing their budgets for 2015. Prior analysis conducted by PKF Hospitality Research found that 80 percent of a property’s performance is influenced by local market conditions. Therefore, in order to begin to understand how your hotel will perform in the upcoming year, it is important to appreciate how the overall market in which you operate is expected to perform.
Accordingly, PKF-HR presents this summary of our local market forecasts for 2015 to aid U.S. hotel operators in the preparation of their 2015 budgets.
SUPPLY AND DEMAND
For most hoteliers, new competition will not be an issue in 2015. In 42 of the 55 Horizons markets, the net change in supply forecast for 2015 is less than 2.0 percent. The Austin, Texas lodging market (6.1 percent) is projected to experience the greatest percentage gain in new hotel rooms in 2015, followed by Pittsburgh (5.3 percent). Hotel construction continues to remain very active in New York City where the lodging supply is projected to increase by 5.1 percent.
Less attractive to developers is the Long Island, N.Y., lodging market, which has no new hotel openings scheduled for 2015. Meanwhile, high economic and regulatory hurdles limit the ability of developers to construct new hotels in northern California. Therefore, it is not surprising that the lodging supplies in Sacramento and Oakland will remain virtually the same in 2015 compared to 2014.
Fortunately for hotel operators in New York, Pittsburgh and West Palm Beach, PKF-HR is forecasting relatively robust growth in demand to accompany the strong projections of supply in their respective cities.
High occupancy levels will limit the growth in lodging in San Francisco, Oakland and Oahu. Seasonality places limits on the growth in demand for hotels in Phoenix (0.9 percent), while a light convention calendar will suppress the growth in occupied rooms in Philadelphia (1.6 percent).
OCCUPANCY, ADR & REVPAR
The combination of a 7.1-percent increase in demand with a 0.2-percent uptick in supply will result in a 2015 nation-leading occupancy forecast in Tucson, Ariz., of 6.9 percent. Despite this strong rate of growth, the annual occupancy level for Tucson in 2015 is forecasted to be a relatively low 61.0 percent. Also projected to enjoy strong gains in demand, combined with minimal increases in supply, equating to growth in occupancy, are the Long Island (3.2 percent) and Norfolk/Virginia Beach, Va., (2.8 percent) lodging markets.
Occupancy levels in Austin and New York are forecast to decline in 2015, but remain above 70 percent. Supply growth greater than 2.0 percent will result in flat levels of market occupancy for hoteliers in Louisville, Ky., and Pittsburgh.
The best news for hotel managers in 2015: projections of strong ADR growth. All but two of the 55 Horizons markets are forecast to achieve ADR increases greater than Moody’s Analytic’s 2.2-percent forecast for inflation in 2015. The exceptions are Norfolk/Virginia Beach and Washington, D.C.
Limited new competition should allow hotel operators in California cities San Jose/Santa Cruz, San Francisco and Oakland to increase room rates greater than 8.0 percent in 2015. Occupancy levels in excess of 74 percent will give hotel managers in Boston and Denver the leverage to boost their prices by more than 7.0 percent.
ADR growth is the primary factor driving RevPAR gains in 53 of the 55 Horizons markets. In general, RevPAR gains driven by ADR enhance the flow through of top-line revenue to bottom-line profits. Hotel managers in San Jose/Santa Cruz, San Francisco, Denver and Oakland are forecast to achieve RevPAR gains in excess of 9.0 percent in 2015 due to a combination of high occupancy levels and strong ADR growth.
PKF-HR is now providing quarterly forecast reports for the following five markets: Charleston, S.C., Louisville, Norfolk/Virginia Beach, San Jose/Santa Cruz and Savannah, Ga.
We wish hotel managers in these new markets, and others, success preparing their 2015 budgets.