The top three hospitality data research firms have changed their tune in the past six months, each now predicting positive year-over-year growth for revenue per available room by the end of 2010.
Smith Travel Research, PKF-HR and Jones Lang LaSalle Hotels each presented updated forecasts during the ALIS Summer Update at the J.W. Marriott L.A. Live on Tuesday. The overall sentiment was that a real recovery is underway, with demand leading the charge.
“In the higher end of the market, demand is back to where it was before 2007,” said Mark Lomanno, president of Smith Travel Research. “Not quite in the lower end.”
Lomanno revisited projections he made in January at ALIS and revised STR’s 2010 year-end RevPAR growth a whopping 6.2 percentage points, from a prediction of -3.2 percent in January to a prediction of 3 percent in July.
“We’re seeing a very rapid demand recovery,” he said. “It has really accelerated in the past three or four months.”
“What a better time to be the lodging industry,” added Mark Woodworth, EVP of PKF-HR, who was quick to point out his January predictions of positive RevPAR growth by Q3 2010 were on track. “There is a quicker turnaround than we expected and we have a much more optimistic economic outlook.
“There’s clear evidence now that the recovery is accelerating.”
Of course, Lomanno and Woodworth both attributed RevPAR growth solely to V-shaped increases in demand and reiterated warnings that hoteliers still haven’t embraced rate increases.
Illustrating trends during the three previous downturns, Lomanno pointed to early recovery data that showed, “for the first time, occupancy is rapidly increasing while [average daily rate] is lagging behind.”
Occupancy compared to pre-2007 levels was down only 2.8 percent in June 2010, but ADR still is down 6.6 percent, he said.
“June is the first month we’ve seen positive ADR growth [year over year],” Lomanno said, “and it’s all coming from one segment—luxury. The rest of the industry is either flat or slightly down.”
Both STR and PKF said positive growth will be sustained because the supply cycle is still flat-lined, although STR did report a jump in “projects in final planning stage.” There were 70,000 rooms under construction in the U.S. in May, STR reported.
Jones Lang LaSalle Hotels CEO Arthur de Haast echoed his optimistic counterparts, forecasting a 40-percent increase in global transactions volume year-over-year from 2009 to 2010.
In the U.S., de Haast said, 2010 transactions volume has already surpassed the total volume of transactions for all of 2009. He estimated $4.5 billion in hotel deals will occur in 2010.
“We’re much more positive than we were six months ago,” he said. De Haast coined 2010 “the year of the REITs,” specifically citing newly formed Pebblebrook Hotel Trust, who has already invested more than $250 million into three landmark hotels since June and plans to invest another $350 million in hotel assets, according to a recent Securities and Exchange Commission filing.
De Haast did forewarn hoteliers, though, that $2.4 trillion in hotel debt will be coming due between 2010 and 2013, possibly causing another hiccup in the transaction market.
In the U.S. alone, $40 billion of commercial mortgage-backed securities debt will need to be refinanced in 2011, he said. The next closest region will see $8 billion in CMBS debt come due in 2011.
“The big question is: What is going to happen with all of this refinancing?” de Haast said. “This is a problem that is not going away.”