PwC: Group demand makes a stirring comeback

An updated lodging forecast released by PwC anticipates that the lodging recovery will enter a new phase, with continued strengthening in group demand and rebounding economic momentum supporting a solid 6.5-percent RevPAR growth in 2014. The updated estimates from PwC are based on a quarterly econometric analysis of the lodging sector, using an updated forecast released by Macroeconomic Advisers in May and historical statistics supplied by STR and other data providers.

“Recent strength in operating performance, despite economic challenges in Q1, has reaffirmed the underlying strength of the U.S. lodging sector,” said Scott Berman, principal and U.S. industry leader, hospitality & leisure, PwC. “With the recovery in group demand accelerating, hotel operators at the higher price points are poised to benefit.”

Based on this analysis, PwC expects lodging demand in 2014 to increase 3.1 percent, which combined with still-restrained supply growth of 1.0 percent, is anticipated to boost occupancy levels to 63.5 percent, the highest level since 1997.

And, despite a lackluster performance by the U.S. economy in the first quarter, the lodging sector outperformed expectations. Continued recovery in the group segment and rebounding economic momentum supports PwC's expectations of that solid 6.5-percent RevPAR growth in 2014. In 2015, as supply growth accelerates, occupancy growth is expected to moderate to 1.3 percent, it said. However, as many hotels more frequently reach occupancy constraints, pricing power is expected to accelerate, resulting in a solid 5.1% growth in average daily room rates.

PwC also notes that RevPAR recovery is now beginning to percolate down to lower priced chain-scale segments, as hotels in the higher-priced segments implement revenue management strategies to manage a stronger-than-expected recovery in group demand. In particular, upper-midscale hotels are on track to surpass peak occupancy levels in 2015, while hotels in the midscale and economy chain-scale segments are anticipated to approach their prior peak occupancy levels.