Ernst & Young Forecasts 2006 Rises In Hotel Rates and Occupancy

Global accounting firm Ernst & Young LLP released its 2006 U.S. Lodging Report this week, forecasting continued profits for the hotel industry due to steady capital flow and increases in average daily rate and occupancy through each major market, and particularly in New York.

The report, released at the Americas Lodging & Investment Summit in Los Angeles, presented data and analysis on the 2005 performance of 16 major U.S. cities, and predictions for 2006. In each case--excluding New Orleans, where numbers decreased due to Hurricane Katrina--2005 year-over-year ADR climbed and was predicted to either rise at least nominally in 2006, if not substantially.

Ernst & Young predicted a 13 percent jump in Manhattan's ADR for 2006, a number that Michael Fishbin, national director of hospitality services at Ernst & Young, said is fueled by decreasing supply. "In Manhattan, there is more compression on the market due to conversions of hotels to residential use," he said. "That will enable hotel owners to raise their rates in 2006." Ernst & Young predicted Manhattan's ADR to be slightly higher than $250, easily the highest rate of any city in the report.

Likewise, occupancy rates were up in 2005 and Ernst & Young anticipates further growth in 2006 due to steady demand and supply growths that continue to remain at historically low levels. "It's an indication of the strong fundamentals with the demand for hotel rooms outpacing supply," Fishbin added.

Others cities, such as Atlanta and Dallas--although growing incrementally--are not enjoying the same bloated numbers as Manhattan or Washington, D.C. "With Dallas or Atlanta, for example, you're talking about a market where occupancy rates are in the low to mid-60s--20 points or more lower than Manhattan, which provides for a lot less pricing power for hotel owners," Fishbin said. "These markets have a longer way to go before they can focus on more rate growth."