During this year’s Hotel Data Conference at the Gaylord Opryland Resort and Conference Center in our hometown Nashville, Tenn., STR presented the adjusted forecast for the remainder of this year and for 2012. As always, new economic data and our observations of current hotel market behavior are the source for the adjustments.
For 2011 we are not seeing any real uptick in construction. We forecast 0.7 percent supply growth, which based on a current inventory of around 52,000 hotels translates into around 350 or so new properties. It turns out that this activity is happening mostly in the midscale segment, so what we see are limited-service hotels being built by local developers with the help of local banks. On the other hand, the five coastal markets of New York, Boston, Miami, Los Angeles and San Francisco are seeing a disproportionate influx of new hotels. In other words, the high-barriers-to-entry markets will be even harder to get into once those new hotels have opened. Coupled with a very large influx of new travelers (demand: 4.7 percent), this depressed supply environment will lead to healthy occupancy growth of around 3.9 percent through the end of this year. Even with large ebbs and flows experienced on the stock market, we project supply growth to remain steady because of the time needed to secure funding for any new project.
The big question surrounds the growth of average daily rate—just as it has for the last few quarters. We are currently projecting that this year the ADR growth will be around 3.7 percent. While that certainly is much better than we have experienced during the past two years, we don’t view that 3.7 percent as a stellar performance.
We find it disconcerting that in light of strong transient and group demand growth, and given occupancies of more than 60 percent for the upper end of the market, that ADR growth is not substantially picking up. We believe the fundamentals are in place for hoteliers to drive rate, but the reality is that they have not aggressively done so up to this point.
For next year, our predictions very much mirror our outlook for 2011. Supply growth will continue to be a non-issue (0.5 percent) with very few markets and street corners seeing a different picture. Demand growth is expected to be robust, especially on the upper end of the market, and the total U.S. number is expected to be around 2.5 percent. We had previously suggested that ADR growth in 2012 would signal the return to the historic growth patterns of an industry- wide upturn and we forecasted around 6 percent ADR growth. However, the macro economic climate and a general feeling of consumer uncertainty make us believe now that the ADR percent change will be 4.9 percent for 2012. Again, that’s not a terrible number, but we expected it to be higher based on the precipitous drop the industry experienced during the recession and the fact that fundamentals are ripe for rapid ADR expansion.
Revenue-per-available-room growth projections for 2011 and 2012 are now 7.8 percent and 7 percent, respectively. It is noteworthy that with this latest ADR revision, RevPAR growth in 2012 is now expected to be lower than in 2011. In all prior forecasts we had reported that 2012 would be a stronger year than 2011. It will be interesting to observe how the 2011 room negotiations for meetings in 2012 and beyond shape up and what signal that sets for demand volume and ADR growth.
