PKF Predicts Sharp Drop in 2009 Hotel Revenue

ATLANTA, GA—The Lodging industry, like the auto industry, formally heard the bad news today from one of the leading research groups in the U.S.

“U.S. hotels have entered the initial stages of one of the deepest and longest recessions in the history of the domestic lodging industry,” according to a new report issued by Mark Woodworth, (top right photo) president of Atlanta-based PKF Hospitality Research.

Woodworth says hotel occupancy and revenue per room will be sharply reduced in 2009 and won’t start to improve until 2010.

However, for the major hotel owners, the news is cushioned by the fact that most of them will still come out of the downturn with a meager profit margin.

“Fortunately for U.S. hotel owners and lenders, the vast majority of properties are fiscally fit entering the current downturn,” believes Jack Corgel, (middle left photo) the Robert C.Baker Professor of Real Estate at the School of Hotel Administration at Cornell University and senior advisor to PKF-HR.

Corgel says unit-level profit margins are estimated to be 29.4 percent in 2008, well above the 26.1 percent long-term average. Interest coverage ratios for the hotels in PKF-HR’s Trends in the Hotel Industry exceed 1.7.

“While PKF-HR does not believe the current forecast will generate abundant hotel foreclosures and bankruptcies, operating conditions are at vulnerable levels and further deterioration could impact the solvency of U.S. hotels,” Corgel notes.

“In view of the significant volatility in the domestic and global economy, a negative bias on this outlook is appropriate,” he adds.

The 7.8 percent drop in RevPAR the hospitality research firm is now forecasting for 2009 will be the fifth largest annual decline in this important measure since 1930,” according to Mark Woodworth, president of PKF Hospitality Research.

Further, PKF-HR is forecasting the nation’s hotels will not experience a year-over-year quarterly increase in RevPAR until the second quarter of 2010.

The projected seven consecutive quarters of declining RevPAR, beginning with the just reported third-quarter decline of 1.1 percent, according to data from Smith Travel Research, marks the longest stretch of falling revenues endured by U.S. hotels since STR began tracking performance data in the late 1980s.

Woodworth says, “The speed and severity of the downturns in employment and income continue to accelerate.

“Given the strong correlation between these two economic measures and demand for lodging accommodations, we are forecasting 2.5 percent fewer occupied rooms in 2009. This follows an estimated 1.0 percent decline in demand for year-end 2008.”

Except for New Orleans, all of the 50 markets analyzed by PKF-HR are forecast to suffer a decline in RevPAR in 2009.

The main culprit for the decline in RevPAR is the forecast fall-off in demand. In 40 of the 50 markets, PKF-HR is forecasting a lower number of rooms to be occupied in 2009 as compared to 2008.

In 18 of these markets, an above average increase in the supply of hotel rooms “exacerbates the competitiveness of the marketplace.” Woodworth says.
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