PKF Sees Deepening Decline In U.S. Lodging Demand

The U.S. lodging industry is likely to see revenues drop, rates stall and the first two consecutive years of declining demand in two decades, according to a study PKF Hospitality Research released today.

Because of the current economic slowdown, PKF expects lodging demand to decline by 0.2 percent this year and another 1.1 percent in 2009. Demand has not dropped for two consecutive years since 1988, according to Smith Travel Research.

At the same time, PKF said that during those same two years, the industry will add about 275,000 new hotel rooms, a 6.2 percent increase in supply from the end of 2007. Although hotels have been able to see a 4.2 percent increase in average daily rate for the first six months of this year—in part because of corporate negotiated rates that were set in 2007—that growth will shrink through the end of 2009, according to the study.

"With supply and demand moving in opposite directions, the typical hotel manager will not be able to maintain his aggressive approach to raising room rates," PKF Hospitality Research president Mark Woodworth said in a statement. "Accordingly, we are forecasting average daily rate growth for the entirety of 2008 to be 3.6 percent, followed by a minimal 1.3 percent gain in 2009."

Occupancy, too, will continue to decline during those years, following the 0.3 percent 2007 decline occupancy reported by Smith Travel Research. Revenue per available room, meanwhile, now is expected to grow by only 0.8 percent this year and fall by 3.2 percent in 2009, the study indicated.

Looking further ahead, PKF said that the credit crisis ultimately would limit construction, slowing supply growth in 2010 and 2011. At that time, demand and occupancy will begin to once again pick up. "The projected industry slowdown won't be as deep as the ones observed in 1981 or 1991, but it may take a little longer to fully recover," according to Woodworth.