U.S. Hotel Profit Growth Returns in 2010
Economic Headwinds Cloud Future Performance
Atlanta, GA -- Based on the strong surge in lodging demand that occurred during the first half of 2010, Colliers PKF Hospitality Research (PKF-HR) now forecasts that the average U.S. hotel will achieve a 2.3 percent increase in net operating income (NOI) during 2010. This follows a 37.8 percent cumulative decline in profits experienced from 2007 through 2009, and is the first annual uptick in forecasted NOI since 2007.
The improved outlook for 2010 bottom-line performance is the result of increasing optimism about the top-line. In the recently released September 2010 edition of Hotel Horizons®, PKF-HR forecasts a 4.6 percent increase in revenue per available room (RevPAR) for the U.S. lodging market in 2010. This is the result of a projected 5.2 percent rise in occupancy, but a 0.6 percent decline in average room rates (ADR). “Our analysis confirms that the sharp rise in demand during the first half of 2010 is partially attributable to the low level of room rates,” Woodworth added.
Budgeting for 2011
While PKF-HR’s forecasts during the past few quarters have grown increasingly optimistic for 2010, the firm’s projections for 2011 have softened. In the September 2010 Hotel Horizons® report, PKF-HR forecasts RevPAR to increase 5.9 percent in 2011. This compares with the firm’s 7.8 percent RevPAR forecast published in June of 2010. “It’s not that we are becoming less bullish on 2011. It’s more that the 2010 recovery is happening at a quicker pace,” Woodworth noted.
For 2011, PKF-HR is projecting ADR to increase 3.8 percent. Concurrently, occupancy is forecast to grow 2.1 percent. With ADR driving revenue growth, unit-level NOI is projected to rise 10.8 percent.
“The projected 5.2 percent annual increase in occupancy during 2010 is based on the strong 7.0 percent growth in lodging demand reported by Smith Travel Research (STR) for the first half of the year, plus the modestly optimistic economic forecast prepared by Moody’s Economy.com in July of 2010,” Woodworth said. “While our 2010 performance projection has improved over previous forecasts, we are becoming a bit more concerned about the economic environment that lies ahead. We like what we’ve seen so far in 2010, but we are starting to notice some potential economic headwinds that could pose a threat to hotel performance.”
“Uncertainty impacts the psyche of both hotel operators and their potential guests. We have identified several factors that are a cause for concern: persistent high levels of unemployment, continued weakness in housing, airline capacity constraints, the November elections, and the tax policies that expire on January 1, 2011,” stated John B. Corgel Ph.D., the Robert C. Baker Professor of Real Estate at the Cornell University School of Hotel Administration and Senior Advisor to PKF-HR. “It is important to note that the PKF-HR positive forecasts of lodging performance include the economic forecast assumptions of Moody’s Economy.com. However, I must admit that our bias towards the September forecasts is slightly negative, meaning that actual results are more likely to fall short of, rather than exceed, projected results.”
To observe a complete discussion of these economic headwinds, we invite you to view a video conversation between Mark Woodworth and Dr. Jack Corgel. The video can be found at:
To purchase a September 2010 Hotel Horizon® report, please visit . Reports are available for each of 50 major metropolitan areas in the U.S., and contain five year projections of supply, demand, occupancy, ADR, and RevPAR.
About Colliers PKF CONSULTING USA
Headquartered in San Francisco, Colliers PKF Consulting USA (www.pkfc.com) is an advisory and real estate firm specializing in the hospitality industry. Colliers PKF Consulting USA is owned by FirstService Corporation and is a subsidiary of Colliers International. The firm operates three companies: Colliers PKF Consulting USA, Colliers PKF Hospitality Research, Colliers International Hotels. The firm has offices in New York, Boston, Indianapolis, Chicago, Philadelphia, Washington DC, Atlanta, Jacksonville, Orlando, Tampa, Houston, Dallas, Los Angeles, Bozeman, Miami, Portland, Seattle, Sacramento, and San Francisco.
Colliers PKF Consulting USA offers hotel appraisal and hotel valuation services, hotel market studies, hospitality litigation support, and hotel advisory services. Colliers International Hotels offers hotel brokerage and hotel transaction services. Colliers PKF Hospitality Research produces Hotel Horizons®, an econometrically based hotel forecast, BenchmarkerSM, a customized comparative hotel benchmark report, and Annual Trends®, a historical hotel financial publication featuring rich hotel statistics, as well as hotel research services.
About Colliers International
Colliers International is a global leader in real estate services with more than 15,000 professionals operating out of 480 offices in 61 countries. As a subsidiary of FirstService Corporation (NASDAQ: FSRV; TSX: FSV and FSV.PR.U), Colliers offers the stability of a strong financial partner and significant local ownership providing clients with accountability and enterprising real estate solutions. Colliers provides a full range of services to real estate users, owners and investors worldwide including: global corporate solutions; sales and lease brokerage; property and asset management; project management; hotel investment sales and consulting; property valuation and appraisal services; mortgage banking and insightful research. The Lipsey Company and National Real Estate Investor magazine ranked Colliers International as the world’s number two commercial real estate brand.
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