PricewaterhouseCoopers Revised U.S. Lodging Forecast: RevPAR will Grow 6.3 Percent, the Largest Increase Since 1984

NEW YORK, PricewaterhouseCoopers forecasts revenue per available room (RevPAR) to increase by 6.3 percent in 2004, the largest increase in 20 years.

The 3.7 forecast increase in average daily rate in 2004 will contribute almost 60 percent of the total forecast RevPAR gain for the year. Many factors support the favorable outlook for ADR:

• upward revisions to inflation forecasts;
• acceleration of business travel and the consequent increase in higher-rate lodging demand;
• consolidation of ownership, and therefore, more properties under pricing discipline;
• dramatic increase in control being exercised by hotel companies and owners over rate integrity and inventory, leading to less discounting on third-party distribution channels; and
• aftermath of hurricanes in Florida, generating room demand from people involved in damage assessment, insurance, and reconstruction in otherwise low-occupancy months, with especially positive effects on room rates.

The lodging expansion that is underway will bring lodging demand to 2.71 million daily occupied rooms in 2004, or 2.1 percent above the previous peak level recorded in the 2000. With supply expanding by only 1.3 percent in 2004 amid 3.7 percent demand growth, occupancy will advance to 60.6 percent, an increase of 1.5 occupancy points from 2003.

“We were criticized for being too negative in 2002 and 2003, but our forecasts were almost exactly the actual results, and for 2004 and 2005 we have been criticized for being too positive. But this regularly scheduled quarterly update is for even more positive growth in rate; our demand forecast for 2004 is unchanged,” said Dr. Bjorn Hanson, Global Practice Leader of PricewaterhouseCoopers Hospitality & Leisure Practice.

Real GDP is forecast by Macroeconomic Advisers to grow by 4.4 percent in 2004, followed by 3.9 percent growth in 2005 and 3.6 percent growth in 2006. Consumer prices are expected to advance by 2.7 percent in 2004, followed by 2.2 percent annual increases in both 2005 and 2006. These new forecasts represent slightly slower real GDP growth and an acceleration in inflationary pressures, compared to the macroeconomic forecasts underlying our June 2004 forecasts.

Demand growth is expected to moderate in the next two years to the long-term annual growth rate of approximately 2.8 percent. Occupancies will improve to 62.1 percent by 2006, as supply growth remains moderate at 1.5 percent in 2005 and 1.7 percent in 2006.

After achieving 3.7 percent growth in 2004, ADR will increase by 3.5 percent in 2005 and 3.4 percent in 2006, making ADR increases the primary driver of the robust forecast RevPAR growth of 5.0 percent in 2005 and 4.5 percent in 2006.

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