PwC Forecasts Persistent Hotel Seller's Market

Hotel revenue per available room and average daily rate growth will flatten in 2008, but travel buyers should expect at least another few years of a hotel seller's market, according to PricewaterhouseCoopers' 2007 U.S. Lodging Industry Report and Forecast.

The forecast, which has a historical accuracy record of within a few tenths of a percentage point, indicated that average daily rates would increase by 5.6 percent in 2008, about the same level of growth forecast through the end of 2007. Revenue per available room was forecast to increase 5.1 percent, well below the high levels seen in 2004 through 2006 but on par with the increase expected for 2007.

PwC expects that occupancy will drop only slightly to 62.9 percent in 2008, compared with a 63.2 percent forecast for this year. It's still a high level of occupancy, particularly in high-demand cities, said Bjorn Hanson, PwC's hospitality and leisure group principal.

"2008 is within a few tenths of an occupancy point of the highest occupancies in 10 years," he said. "Right now, pricing power in cities like New York, San Francisco and Boston is driving these sets of numbers."

In most hotel tiers of interest to corporate travel buyers, the forecast for RevPAR and rate growth is better than average. The luxury tier is the strongest, with projected rate growth of 6.9 percent in 2008 and RevPAR growth of 6.8 percent. The midprice without food and beverage tier has a similarly strong forecast, with rate growth of 6.8 percent and RevPAR growth of 6.4 percent. In the upscale tier, rates are expected to increase 6.2 percent and RevPAR 5.1 percent. Only the midprice with food and beverage and economy tiers have below-average growth forecasts.

"This is not a case of the entire industry performing on the same levels of growth," Hanson said. "It's a really interesting disparity of performance."

On the supply side, PwC expects the growth rate to increase to 2 percent in 2008, compared with 1.3 percent in 2007 and three previous years of negligible change in supply. "We certainly have more openings and new construction in the pipeline than we did before, but we're not at the long-term level of supply growth," Hanson said.

Supply growth will be greatest in the upscale and midprice without food and beverage tiers, each of which PwC forecasts to grow by 4 percent. PwC expects most other tiers to have growth rates slightly above the 2 percent average, with the exception of the economy tier, which it expects will grow by only about 1.3 percent, and the midprice with food and beverage tier, which it sees decreasing by 2.2 percent in 2008.