PKF Says: More Guests in 2010 But Lower Rates

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. August 14, 2009

AUGUST 14, 2009 - PKF Hospitality Research (PKF-HR) today announced that, according to an advance release of the September 2009 edition of Hotel Horizons(R), nine consecutive quarters of declining lodging demand will come to an end in the second quarter of 2010.

"With the budgeting process underway at hotels around the U.S., the recovery of lodging demand is an important milestone that will be reached in the year ahead," said R. Mark Woodworth, president of PKF Hospitality Research. "The catch; however, is that the practice of price discounting has firmly taken hold, and, as a result, room rates are expected to decline once again in 2010."

Hotels that operate in the luxury, upscale, and midscale without Food & Beverage segments are expected to more customers beginning to re-appear in the fourth quarter of 2009. "While the price paid for the room will remain the most important criteria for most travelers in 2010, the value received will once again factor into the buying decision" Woodworth noted. "Higher-priced hotels have suffered the greatest erosion in pricing power during this protracted contraction and, as a result, offer an abnormally strong value proposition as the industry begins to turn the corner mid-way through 2010. We also believe that those property types that were the best performers before the recession are going to be those leading us out." The two chain scales lagging the U.S. demand recovery will be midscale with Food & Beverage and economy, which will not see improved performance until the third quarter of 2010.

"Of the 50 markets monitored by PKF-HR, 45 will experience stronger demand in 2010 than in 2009," Woodworth added. "It is important to note, however that supply increases are still an issue for hoteliers across the U.S., as 25 of our 50 markets will report further declines in occupancy, even with 20 of those 25 experiencing demand increases." The five lagging markets are Fort Lauderdale, Indianapolis, Miami, Tampa, and Washington, D.C.

Budgeting Accuracy - What We Learned In 2002 & 2003

"During the two budgeting seasons following the post-9/11 period, every forecast and prediction had the business environment improving in the 'next' quarter, regardless of whether that next quarter was the second quarter of 2002, third quarter of 2002, or the fourth quarter of 2003. This optimism led to budget shortfalls, which continued until 2005," Woodworth recounted. "Like times in our recent past, successful hotel owners and operators must be prepared to anticipate additional declines in certain metrics for 2010, which can be extremely difficult without guidance. Hotel Horizons(R) can help by bringing some clarity to the future outlook."

Hotel Horizons(R) is a series of econometrically derived forecast reports developed by PKF Hospitality Research. The reports cover 50 of the largest U.S. hotel markets as well as the nation as a whole, and six chain scales. Economic forecasts by Moody's Economy.com and historic hotel performance data and future supply pipeline information from Smith Travel Research are used to construct the industry's most comprehensive forecasts of U.S. lodging market behavior.