Room Rate Gains to Accelerate in 2015 as Hotels Reach Peak Occupancy, According to PwC US

NEW YORK, November 10, 2014 – An updated lodging forecast released today by PwC US anticipates room rate gains to accelerate and drive a revenue per available room (“RevPAR”) increase in 2015, as hotels achieve occupancy levels reflecting the solid lodging demand trends of recent quarters. During the first nine months of 2014, both individual and group travel exhibited solid momentum, with the year-over-year pace of recovery in group demand outpacing the individual transient segment.

Increased momentum of group demand growth during the third quarter of 2014 is expected to continue in the fourth quarter, and into 2015. Lodging operators are reporting solid momentum in group pace for 2015. The strong outlook for group demand, coupled with continued strong transient travel activity and a positive economic environment is expected to drive a solid 8.2 percent increase in RevPAR this year.  In 2015, supply growth is expected to accelerate, resulting in moderating growth in occupancy.  Still, industry-wide occupancy levels are expected to reach 64.9 percent, the highest since 1984, providing hotel operators with leverage to drive more aggressive pricing.

The estimates from PwC are based on a quarterly econometric analysis of the lodging sector, using an updated forecast released by Macroeconomic Advisers, LLC in October and historical statistics supplied by STR and other data providers. Macroeconomic Advisers expects real gross domestic product ("GDP") to increase 2.2 percent in 2014, and accelerate to 2.8 percent growth in 2015, measured on a fourth-quarter-over-fourth-quarter basis.

Based on this analysis and recent demand trends, PwC expects lodging demand in 2014 to increase 4.3 percent, which combined with still-restrained supply growth of 0.9 percent, is anticipated to boost occupancy levels to 64.2 percent. PwC’s outlook expects accelerating supply growth of 1.4 percent in 2015, as construction of new hotels gathers momentum (up approximately 40 percent in the third quarter, compared to the same quarter last year).  Occupancy levels in the lower-priced chain scale segments are expected to approach or exceed prior peak levels, as price-driven compression from higher-priced hotels drives demand to lower priced hotels.

"Group demand improved significantly in the third quarter, leading to stronger-than-expected occupancy levels,” said Scott D. Berman, principal and U.S. industry leader, hospitality & leisure, PwC. “Despite an evolving supply pipeline, industry demand trends are expected to remain robust, giving confidence to the operating community to drive room rates higher in 2015.”

 

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