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Lodging Recovery Predicted for Balance of 2010

August 31, 2010 By: George Dooley

PricewaterhouseCoopers' (PWC) U.S. lodging forecast expects the lodging recovery that accelerated in the first half of 2010 to gain further traction during the remainder of 2010, as increasing demand begins to rebalance pricing power, the company reports. PWC says although the pace of demand growth is expected to moderate during the second half of 2010, the recovery is expected to shift from almost exclusively demand-driven to a mix of demand and room rate growth, confirming the return of the business segment.

In the first half of 2009, weekday transient demand at higher-priced hotels— a proxy for business travel demand— had fallen 10.6 percent below 2007 levels, when the industry was the strongest. By the first half of 2010, stronger business travel closed more than half of this gap, to just 3.7 percent below 2007 performance.

With growing demand and decelerating supply growth, PricewaterhouseCoopers anticipates that the U.S. occupancy rate will increase 2.6 percentage points for 2010, reaching 57.2 percent. The pricing outlook for the remainder of 2010, and 2011, has improved substantially, resulting in an earlier-than-expected recovery in average daily rate (ADR) during the second half of 2010. This synergistic effect is expected to result in a 4.1 percent increase in revenue per available room in 2010.

PricewaterhouseCoopers' quarterly lodging forecast is based on an updated macroeconomic forecast from Macroeconomic Advisers, LLC which reflects a deceleration in the growth of the U.S. economy during the remainder of 2010, but an outlook for a return to an above-trend growth in 2011. Despite lower macroeconomic growth forecast for the remainder of 2010, stabilized conditions among businesses and consumers provide the context for continued lodging demand growth in 2010, albeit at a slower pace than the first half of the year. Macroeconomic Advisers expects real gross domestic product (GDP) to increase 3 percent in 2010, followed by a 3.5 percent increase in 2011.

The recovery of business travel is expected to continue as recent corporate earnings reports suggest a more confident segment willing to travel. As a result, ADR decline is expected to moderate to just 0.6 percent this year, followed by robust room rate growth of 4.1 percent in 2011.

"Based on current macroeconomic conditions and the lodging industry's performance during the first half of the year, PricewaterhouseCoopers continues to believe the industry will continue to experience a modest recovery for the balance of this year into 2011," said Scott D. Berman, principal and U.S. industry leader, hospitality and leisure, PricewaterhouseCoopers.



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