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Recovery Accelerates with Strong Growth in Group Demand

Recovery Accelerates with Strong Growth in Group Demand

NEW YORK—An updated lodging forecast released by PwC US anticipates 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. Despite a weak first quarter for the U.S. economy, the lodging industry’s performance was above overall industry expectations led by a strengthening recovery in meetings, conferences, and other related kinds of group demand. In 2015, as supply growth accelerates, occupancy growth is expected to moderate to 1.3 percent. However, as many hotels reach occupancy constraints more frequently, pricing power is expected to accelerate, resulting in a robust 5.1 percent growth in average daily room rates and 6.4 percent increase in RevPAR.

The updated estimates from PwC are based on a quarterly econometric analysis of the lodging sector, using an updated forecast released by Macroeconomic Advisers LLC in May and historical statistics supplied by Smith Travel Research and other data providers. Macroeconomic Advisers expects real gross domestic product to increase 2.6 percent in 2014, and accelerate to 3.3 percent growth in 2015, measured on a fourth-quarter-over-fourth-quarter basis.

PwC’s updated lodging outlook incorporates a stronger macroeconomic context, after a weak first quarter, and recent hotel performance, which shows strong recovery in demand, driven most recently by the group segment. Based on this analysis, PwC expects lodging demand in 2014 to increase 3.1 percent, which combined with still-restrained supply growth of 1 percent, is anticipated to boost occupancy levels to 63.5 percent, highest since 1997. PwC’s outlook for supply expects accelerating supply growth of 1.3 percent in 2015, as construction of new hotels gathers momentum (up 44.5 percent in the first quarter, compared to the same quarter last year). The lodging cycle has entered a new phase, with RevPAR recovery 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.

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

Photo credit: Conference via Bigstock

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