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U.S. Lodging Sector Performance Remains Robust

U.S. Lodging Sector Performance Remains Robust

NEW YORK—An updated lodging forecast released by PwC US shows favorable gains in hotel performance are continuing in the second half of 2013, and, assuming a fiscal policy resolution is reached, improving economic conditions are expected to help support further hotel performance gains next year. Occupancy levels at higher-priced hotels are ahead of prior peak levels, industry RevPAR is above its prior peak, and hotel construction activity, while rebounding, is still quite limited. As demand continues to outpace supply growth, and economic conditions strengthen, PwC expects growth in occupancy and average daily rate (ADR) will continue, resulting in RevPAR growth of 5.5 percent in 2013, and improving to 5.9 percent in 2014.

The updated estimates from PwC are based on a quarterly econometric analysis of the lodging sector, using an updated forecast released by Macroeconomic Advisers in October and historical statistics supplied by Smith Travel Research and other data providers. Macroeconomic Advisers expects real gross domestic product (GDP) to increase 1.9 percent in 2013, and accelerate to 3.2 percent growth in 2014, measured on a fourth-quarter-over-fourth-quarter basis.

Overall, based on the analysis referenced above, PwC expects lodging demand in 2013 to increase 2 percent, which combined with still-restrained supply growth of 0.9 percent by year-end, is anticipated to boost occupancy levels to 62.2 percent, the highest since 2007. Demand gains are primarily being led by the business and leisure transient segments, which have benefited from activity in sectors such as technology, finance and insurance, healthcare, and professional and business services, while the group segment continues to lag. Macroeconomic data suggest that consumer spending is firming, in part due to gains in household wealth, lower household debt burdens, and gradual improvement in labor markets, supporting growth in leisure travel.

Although business leaders remain cautious, investment spending continues to grow, and companies are planning group meetings, with stronger bookings in place for 2014. Increased occupancy levels are expected to give operators further confidence to drive increased pricing, resulting in a solid 4.6 percent increase in ADR in 2014. Among chain scales, luxury hotels are experiencing the strongest performance gains, and are on track for 74.4 percent occupancy in 2013, despite a 25.5 percent increase in supply between year-end 2007 and year-end 2010.

“Outside Washington DC and other markets impacted by the government shutdown, the U.S. lodging industry is expected to finish 2013 on a positive note,” said Scott D. Berman, principal and U.S. industry leader, hospitality and leisure, PwC. “The underlying strength of the lodging sector, coupled with a favorable demand-supply balance, is expected to continue to drive average daily rate in 2014, supporting sustained RevPAR growth above five percent for the fifth consecutive year.”

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