Credit Markets Situation Has Little Impact
OCTOBER 4, 2007. PricewaterhouseCoopers' revised forecast reflects small changes in the U.S. lodging industry's growth, including supply, occupancy, ADR and RevPAR, compared to PwC's August 2007 forecast.
The September 2007 revision reflects revised economic forecasts from Macroeconomic Advisers, LLC and PwC's forecast of the credit markets impact on the U.S. lodging industry. According to the revised research, 2007 RevPAR is forecast to increase by 5.6 percent, 0.1 percentage points below the August forecast, primarily due to a 5.7 percent increase in ADR, while occupancy is forecast to remain stable at approximately 63 percent.
Compared to PricewaterhouseCoopers' August 2007 forecast, supply growth is expected to remain relatively unchanged for the rest of 2007 as financing has been completed for hotels that will be placed in service this year. Demand growth is forecast to be slightly less for the rest of 2007. However, supply and demand growth in 2008 are forecast to increase by 2.0 percent and 1.6 percent, respectively, compared to the August 2007 forecast of 2.1 percent and 1.7 percent, respectively.
"The number of lodging projects cancelled because of higher interest and reduced availability of construction and permanent financing is limited, however, there are a larger number of projects delayed because lenders are re-evaluating lending risks and pricing," says Bjorn Hanson, Ph.D., principal in the Hospitality & Leisure practice of PricewaterhouseCoopers.
"Increased 'spreads' reflecting perceived higher risks are occurring at a time of record industry debt service coverage and profitability. Although the U.S. economy will grow more slowly than was the basis for PwC's August forecast, in part due to what is transpiring in the credit markets, and therefore the demand growth will be less -- the effect of the credit markets will be to slow supply growth," he further adds.
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