PwC: Occupancy To Decline
<B>PwC: Occupancy To Decline</B>
By Bruce Serlen
U.S. hotel occupancy rates will decline slightly in 2001 and again in 2002 and 2003, after reaching an estimated 63.7 percent in 2000, according to consulting firm PricewaterhouseCoopers, which announced its lodging industry forecast last month. Occupancy rates for the period are estimated to remain relatively stable at around 63.2 percent.
"The decrease in occupancy rates is coupled with a gradual decline in the growth of U.S. hotel room supply for the three-year period," said Bjorn Hanson, head of PwC's hospitality and leisure industry practice. The growth in hotel room supply, expected to be 2.9 percent in 2000, is projected to slow to 2.6 percent in 2001, 2.3 percent in 2002 and 2.2 percent in 2003. This slowing in the rate of supply growth, in turn, will minimize the effect on room rates. In fact, room rates, which were expected to jump 4.9 percent for 2000, are projected to rise 4 percent in 2001, 3.8 percent in 2002 and 4.2 percent in 2003.
Built into PwC's projections, meanwhile, is discouraging news for the lodging industry concerning revenue per available room, an important measure of profitability. Growth in RevPAR is expected to fall from 5.8 percent in 2000 to 3.3 percent in 2001. It then will regain momentum somewhat, rising to 3.8 percent in 2002 and 3.9 percent in 2003.
Yet, the lodging industry still has plenty to celebrate: "The spectacular pace of the U.S. economy in 2000 translated into a remarkable year for the U.S. lodging industry," Hanson said. Room demand was expected to finish the year 2000 with the strongest growth rate since 1989, and the 5.8 percent growth in RevPAR in 2000, while it is expected to fall, was still the strongest since 1996.
For travel buyers, the seller's market will continue. In many cases, the expected decline in room rates is negligible, especially if travel managers require extensive coverage in such tight hotel markets as New York, San Francisco and Boston and, at the same time, don't bring business to what are termed "need hotels in need cities."
Underlying the PwC projections is the belief that the national economy is heading toward more moderate growth. "A number of factors are working to slow the current economic expansion," Hanson said. "As consumption expenditure growth slows, so will room demand growth."
According to PwC, higher interest rates and tighter lending standards have restrained construction activity in the industry. This explains why average room supply growth through 2003 is expected to remain well below its 1996 to 1999 growth average of 3.6 percent. Therefore, occupancy is expected to remain relatively stable at around the 63.2 percent point. Room rate gains, meanwhile, will be restrained by the overall demand growth slowdown and moderate consumer price inflation.
"Regarding RevPAR growth, the overall macroeconomic and lodging fundamentals simply do not support a repetition of the spectacular RevPAR growth of 2000," Hanson said.
Moving outside the U.S. market, lodging in Europe remained strong in 2000 and prospects for continued growth in 2001 and beyond are promising. Asia/Pacific markets, by contrast, only now are regaining solid footing after the recent, persistent economic troubles.
In Europe, much of the current success is due to the integration that has transformed the region since the introduction of the European Union. "Travel is less costly and easier in today's Europe," said Daniel Larkin, PwC European hospitality and leisure consulting practice leader. "There is more competition among travel providers and better infrastructure." Demand growth is expected to far outweigh increases in supply. "Lodging supply additions are minor in comparison with demand growth," he said. PwC estimated that RevPAR in the region will grow smartly, when measured in local currencies.
Through September 2000, Amsterdam and London recorded the highest occupancy rates, followed by Paris, Madrid, Rome and Frankfurt.
Caroline Mace, PwC hospitality and leisure consulting practice director for Asia/Pacific, foresees solid signs of a lodging industry recovery in that region, the result of the improving economic conditions. "Supply growth is expected to accelerate from less than 1 percent in 2001 to 2 percent in 2002 and 3 percent in 2003," she said. PwC estimated that this year Singapore, Seoul and Tokyo will have the region's highest occupancy rates, between 83 percent and 85 percent, followed by Taipei and Hong Kong.