U.S. RevPAR To Hit New High In 2013
Jones Lang LaSalle Hotels Report Says
Jones Lang LaSalle Hotels today released its first FocusOn: Outlook for RevPAR Turnaround, a five-year forecast indicating revenue per available room (RevPAR) will reach $68.28 in 2013, exceeding the previous peak achieved in 2007. The firm expects U.S. RevPAR to decline 12.1 percent this year, comprised of a 7.4 percent decline in average daily rate (ADR) and a 5.1 percent drop in occupancy. RevPAR is expected to bottom out in 2010, a positive indicator of upward momentum on the horizon.
Gradual increases in both occupancy and ADR will contribute to RevPAR growth and a return to a higher volume of hotel asset transactions. The firm’s lodging performance forecast is based on an analysis of economic indicators which have demonstrated significant correlation to hotel performance in the past including gross domestic product and gross metro product, United States per capita income, United States retail and food services sales, the Consumer Price Index, the Standard & Poor's 500 Index and an analysis of the supply pipeline.
Of the six metropolitan areas analyzed, New York and Los Angeles are expected to record further RevPAR declines in 2010, at 6.9 percent and 1.4 percent, respectively. These forecasts are based on the independent economic forecasts for these markets as well as the new supply pipeline. In Chicago, Miami, San Francisco, and Washington, D.C., RevPAR growth is expected to return in 2010.
The silver lining for existing hotel investors will be the significant attrition to the supply pipeline and reduced number of new rooms that are scheduled to be delivered in 2009 and beyond. “Considering that only projects that have received funding or are already under construction are likely to open during 2009, we expect approximately 102,000 new rooms to enter the market this year. This represents 2.2 percent of existing supply and is lower than the growth rate recorded in 2008. As such, we expect the new room openings to have peaked in 2008,” said Adler. The number of hotel projects in the planning stage declined by 10 percent from January to March 2009, illustrating the elevated attrition rates in the market.
In the near future, structured transactions and recapitalizations, including joint ventures, preferred equity structures and sale leasebacks, will be prevalent. These structures will provide sellers with the desired initial cash proceeds and will provide the potential to earn-out additional value on the back-end.
As pronounced RevPAR declines take hold during 2009, there are strategies that can be implemented to mitigate the dilution of net operating income. “While cost cutting is today’s modus operandi, revenue generation must remain the primary focus of any hotel operation,” said Bruce Stemerman, managing director of strategic advisory and asset management for Jones Lang LaSalle Hotels. “The balance between these two often opposing objectives can be achieved through a strategic assessment, an operating review and effective yield management.”
“As the RevPAR recovery gathers steam in 2011, owners need to be cognizant of expense creep and seek to delay the return of previously eliminated expenses for as long as possible,” said Stemerman.
To request a copy of Jones Lang LaSalle Hotels’ research report, FocusOn: Outlook for RevPAR Turnaround, visit or .