Stabilizing Occupancy Not Driving Higher Hotel Rates

Though hoteliers could experience a strong revenue rebound in 2012, they will continue to see rates decline across all tiers this year, according to a recent forecast issued by PKF Hospitality Research. Smith Travel Research, meanwhile, updated its 2010 U.S. lodging industry forecast, calling for lesser drops in rate and revenue than it predicted previously and reversing its forecast of a drop in occupancy.

Smith Travel Research now expects occupancy will increase 1.9 percent this year to 55.8 percent, bringing occupancy recovery a year earlier than its previous forecasts. In November, STR said occupancy would drop by 0.2 percent this year.

The recovery will pick up in the second and third quarters of this year, then moderate, according to Smith Travel Research president Mark Lomanno.

Revenue per available room and rates still will drop this year, though by less than it previously projected, the firm said. It expects average daily rate will fall by 2.3 percent and RevPAR by 0.5 percent, versus its earlier forecast of 3.4 percent and 3.6 percent drops, respectively.

"The takeaway is that 2010 is going to be significantly better than hoteliers thought it would be, and they plan their strategies accordingly," Lomanno said. "It won't be back to 2007 or 2008 levels, and there will be easy comparisons to last year."

PKF's forecast calls for even lesser declines in rate but a bigger decrease in revenue per available room. The firm predicts 1.4 percent year-over-year decline in average daily rate this year and a 1.1 percent decline in revenue per available room. Two tiers—luxury and midprice without food and beverage—will experience RevPAR increases, but all tiers will have to lower rates to boost occupancy.

"The most prevalent rate discounting is forecast to occur in the upper-upscale segment," according to PKF Hospitality Research president Mark Woodworth. "Most big-box convention hotels fall into this category, so the decline in average daily rate reflects the negotiating leverage currently held by meeting planners."

Both RevPAR and rate will begin to inch up in 2011 and then have a stronger rebound in 2012, boosted by projected growth in income and employment, according to PKF.

In 2012, PKF expects RevPAR to grow by 10.5 percent year over year. It would be the first time the lodging industry sees double-digit percentage RevPAR growth in several decades.