PwC Forecasts Strengthening Hotel Seller's Market

The U.S. lodging industry's per-room revenue this year will register the highest percentage growth in 20 years, PricewaterhouseCoopers said today during its 10th Annual U.S. Lodging Industry Briefing. Forecasting an 8.1 percent jump in RevPAR over last year's levels, PwC's data illustrates how the current lodging market—with its stunted supply and swelling demand—is leaving many buyers at the mercy of hoteliers. Furthermore, by all measures, seller's market conditions should continue through 2007, according to the PwC forecast.

Contributing to overall revenues and high profits among hotel companies, occupancies and average daily rates continue the upward trajectory established in recent years. Occupancies will increase in all segments this year and continue to rise through 2007, with luxury and midprice without food and beverage leading the pack in 2005. "It's not the case of a rising tide raising all ships equally," Bjorn Hanson, head of the PricewaterhouseCoopers hospitality and leisure practice, said of lodging performance by segment.

PwC anticipates that average rates will rise by 5.2 percent for the full year. Occupancy this year should hit an average of 63 percent, hovering just below numbers recorded in the benchmark year of 2000. Next year, however, PwC forecast occupancies to rise above 2000 levels and average 64.1 percent.

While travel buyers bemoan the hegemony of hoteliers, the current situation may not be as bad as first glances suggest. Though PwC said RevPAR amounts, without adjusting for inflation, would surpass 2000 levels during the first quarter of 2006, real RevPAR levels will not exceed those of 2000 until the end of 2007. When adjusted for inflation, 2005 ADR is still below that of 2000, Hanson added.

Further exacerbating corporate travel buyer leverage, the U.S. lodging market still faces overall supply growth that hovers below long-term averages—growing a modest 0.4 percent this year and 1.4 percent next year, PwC said.

However, buyers this year were given more choice in brands, with the introduction of 15 hotel brands—eight alone in the thriving luxury segment. PwC said there are 201 distinct hotel brands in the United States, compared with only 81 in 1980. "Although it's not a record, it's far more than in recent years," said Hanson.

PwC last month expanded Hanson's role in the company to focus on research and thought leadership development for PwC. Although Hanson will continue to serve hospitality and leisure clients, the company appointed Scott Berman as advisory practice leader of the firm's U.S. hospitality and leisure group.

Meanwhile, computer reservation systems and global distribution systems continue to comprise the bulk of hotel bookings, yet as hotel companies increasingly take control of their inventory, brand Web sites are gaining ever more traction among various booking channels. Hanson said the volume of such bookings could very well surpass those in the GDS next year.