Budgeting is a local affair, so understand your market
By Robert Mandelbaum, Director of Research Information Services at CBRE Hotels
underway. Prior analysis conducted by PKF Hospitality Research (PKF-HR) found that 80 percent of a property's performance is influenced by local market conditions. Therefore, in order to begin to understand how your hotel will perform in the upcoming year, it is important to appreciate how the overall market in which you operate is expected to perform.
Among the 50 markets covered by our June 2013 Hotel Horizons reports, we see 2014 revenue per available room forecasts ranging from a low of 2.6 percent (New Orleans) to a high of 10.2 percent (Oakland, Calif.). This proves the localized nature of the lodging business. Accordingly, PKF-HR is pleased to present a summary of our local market forecasts for 2014 to aide U.S. hotel operators in the preparation of their 2014 budgets.
SUPPLY AND DEMAND
For most hoteliers, new competition will not be an issue in 2014. In 45 of the 50 Horizons markets, the net change in supply forecast for 2014 is less than 2 percent. Hotel construction continues to remain most active in New York City where the lodging supply is projected to increase by 6.6 percent. The impact of the fall 2013 opening of the 800-room Omni Hotel in Nashville, Tenn., is the primary influence of the 4-percent increase in citywide rooms available during 2014. Other metro areas expected to see relatively strong gains in supply include Pittsburgh, Philadelphia and Washington D.C.
High economic and regulatory hurdles limit the ability of developers to construct new hotels in northern California. Therefore, it is not surprising that the lodging supplies in Sacramento, Calif., Oakland and San Francisco will remain virtually the same in 2014 compared to 2013.
Fortunately for hotel operators in New York, Pittsburgh, and Nashville, Tenn., PKF-HR is forecasting relatively robust growth in demand to accompany the strong projections of supply in their respective cities. Also forecast to enjoy greater than average gains in demand are Tucson, Ariz., and Charlotte, N.C. While lodging demand is forecast to decline by 1.7 percent in Oahu during 2014, the occupancy level for the market is projected to remain above 80 percent.
OCCUPANCY, ADR AND REVPAR
The combination of a 4.7-percent increase in demand with a 0.3-percent increase in supply will result in a nation leading forecast boost to occupancy of 4.3 percent in Tucson during 2014. Also projected to enjoy strong gains in demand, combined with minimal increases in supply, are the Kansas City, Mo., and Minneapolis lodging markets.
Occupancy levels in Oahu, Newark, N.J, and New York are forecast to decline in 2014, but remain above 70 percent. Demand growth less than one percent will result in declining levels of market occupancy for hoteliers in New Orleans and St. Louis.
The best news for hotel managers in 2014 is the projections of strong average daily rate growth. All 50 Horizons markets are forecast to achieve ADR increases greater than Moody's Analytic's 2.5-percent forecast for inflation in 2014. ADR growth in excess of inflation typically leads to significant gains in profits.
Limited new competition should allow hotel operators in Oakland, Calif., and San Francisco to push room rates aggressively in 2014. Down in Texas, the surge in oil and gas production will provide a healthy economic environment and enable hoteliers in Dallas and Houston to raise room rates by 7.1 percent.
For the most part, ADR growth is the primary factor driving RevPAR gains in the markets forecast to achieve the greatest increases in revenue in 2014. Conversely, limited or declining occupancy levels are inhibiting revenue increases in the markets forecast to lag in RevPAR growth.
BULLISH FOR 2014
PKF-HR is bullish regarding the outlook for the nation's major lodging markets in 2014. All 50 of the markets we track are expected to enjoy an increase in revenue during the year, but the diversity of the composition of supply, demand, and pricing changes that will fuel the revenue growth is something worthy of further investigation by industry participants as they prepare their marketing plans and budgets for the upcoming year.
Director of Research Information Services
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CBRE Hotels is a specialized advisory group within CBRE providing brokerage, valuation, consulting, research and capital markets services to companies in the hotel sector. CBRE Hotels is comprised of over 375 dedicated hospitality professionals located in 60 offices across the globe.
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