Q1 '99 Sets Hotel Demand Record

<B> Q1 '99 Sets Hotel Demand Record</B>

By Lynn Woods



In the first quarter of 1999, demand for hotel rooms increased by 3.8 percent, the highest quarterly rate reported since 1990, according to statistics compiled by Smith Travel Research, a Hendersonville, Tenn., company that tracks and analyzes the lodging industry.

The growth in room supply, pegged at 4 percent, continued to outpace demand, though it represented a slight decline over the 4.1 percent reported in the first quarter of 1998.

"The industry room supply and room demand relationship has begun to approach equilibrium," noted STR president Mark Lommano. That's good news for the hotel industry. For corporate travel managers, however, it probably means more struggles at the negotiating table as demand catches up to the supply of rooms.

STR vice president Chuck Ross said the downturn in room supply growth for the quarter reflected the falloff in investment in the hotel industry that occurred last August and September as a result of jitters about the global economy. "The availability of funding for new construction dried up in the third and fourth quarters of 1998," he said. "Projects got deferred because of concern about the Asian financial crisis, rumblings about the Brazilian economy and the collapse of the Russian ruble. The talk of recession and an underlying fear of overbuilding in the hotel industry made investors skittish." Now, however, "financing is loosening up a little bit" for hotel projects as the resilient U.S. economy has quieted investors' fears, he said.

In other STR findings, the average daily rate for the first quarter increased 3.8 percent over the same period last year, to $81.88. Occupancy was down slightly at 59.4 percent, while revenue per available room was up 3.5 percent, to $48.65.

Within the top 25 markets, the most significant decreases in occupancy occurred in Dallas, Denver and Seattle. In Dallas, occupancy fell 5.8 percent from the first quarter of 1998, with a 13.6 percent increase in the number of rooms available outpacing the 7.8 increase in the number of rooms sold.

In Denver, occupancy fell 2.5 percent and the percentage of rooms available increased by 12.3 percent, compared with a 9.5 percent increase in rooms sold. Seattle occupancy was down 6.7 percent. The percentage of rooms available was up 5.3 percent, compared with a 1.2 percent increase in number of rooms sold.

But business boomed in Detroit, where occupancy rose 4.7 percent over the first quarter of 1998 and the percentage of rooms available increased by only 5.8 percent, compared with a 10.8 percent increase in rooms sold. Occupancy also was up 3.8 percent in the Norfolk/Virginia Beach area, where there was only a slight increase in supply--1.9 percent--compared with a 5.6 increase in number of rooms sold.

In Atlanta, occupancy increased 3.3 percent, with a 5.2 percent increase in rooms available and a 3.7 percent increase in rooms sold.