By year-end 2014, the 55 major U.S. markets covered by the PKF-HR Hotel Horizons forecast reports are projected to achieve an all-time record high occupancy level. PKF-HR is forecasting an aggregate occupancy of 70.4 percent in 2014 for these major markets, eclipsing the previous peak level of 69.0 percent reported by STR in 1996. For comparison purposes, PKF-HR is forecasting that the overall U.S. lodging market will surpass its all-time record occupancy level in 2015.
Record performance for the major markets is expected to persist through 2016. PKF-HR is forecasting the 55 Horizons markets will achieve aggregate occupancy levels of 70.8 percent in 2015 and 71.4 percent in 2016.
Because of these lofty occupancy levels, hotels in the major markets will gain pricing power. Annual increases in average daily rate for this group are projected to be more than twice the long-run average annual ADR growth rate in both 2014 and 2015. It should also be noted that ADR increases in the major markets will exceed the national average ADR growth rate in 2014 and 2015.
SUPPLY AND DEMAND
New York, Pittsburgh and Austin will experience the greatest increases in supply in 2015. During the year, the inventory of available rooms is projected to rise by 7.4 percent in Austin, 7.2 percent in New York, and 6.2 percent in Pittsburgh. The coastal gateway markets of Miami and Seattle will also see significant gains in supply during the year.
Fortunately for hoteliers in Austin, New York and Pittsburgh, the significant increases in supply will be matched with strong gains in demand. While these three cities lead the nation is forecast supply growth, they also are forecast to enjoy the greatest gains in demand during 2015.
Lodging demand is forecast to increase in all 55 markets except Oahu. Unfavorable currency exchange rates and a troubled Japanese economy will have a negative influence on travel to Hawaii.
OCCUPANCY, ADR AND REVPAR
Change in supply is the primary factor influencing the 2015 forecasts of change in occupancy. Among the five markets forecast to achieve the greatest occupancy growth in 2015, the projected change in supply is less than the national average of 1.3 percent in all but Dallas.
On the other hand, the 2015 average change in supply for the markets of Houston, New York, Raleigh-Durham, N.C., and Austin is 5.3 percent, well above the national average. Accordingly, these four markets are forecast to suffer the greatest declines in occupancy during the year.
Once again, hotels in the San Francisco bay area are forecast to achieve the greatest increases in ADR. In 2015, ADR growth will exceed 9.0 percent in Oakland, San Jose-Santa Cruz and San Francisco.
While all 55 Horizon markets are forecast to enjoy ADR growth in excess of inflation, local market conditions will limit the ability of some hoteliers to raise their room rate. Lagging in expected ADR growth for 2015 are Norfolk-Virginia Beach, Va., and Washington, D.C. Hotels in these two are suffering from flat, or declining, federal per diem hotel room rates.
LOW OIL PRICES
Low oil prices, and resulting reductions in the cost of gasoline, should benefit most hotels across the nation, and most likely result in RevPAR gains.
However, research conducted by PKF-HR since December 2014 finds that some cities are vulnerable to potential reductions in expected performance. On average, the mining and oil industries comprise 2.3 percent of the U.S. national economy. Within the Hotel Horizons universe of 55 markets, eight markets are more dependent on the mining and oil industries than the overall national economy. These markets, and their exposure to the mining and oil industries, are: Houston (17 percent); New Orleans (7 percent); Dallas (7 percent); Denver (6 percent); Pittsburgh (5 percent); San Antonio (4 percent); Tucson, Ariz. (4 percent); Austin (4 percent).
Cutbacks in hospitality spending by both the oil companies, and the companies that provide goods and services to the oil industry, will have a negative impact on hotels located in the markets listed above.