Last updated: 04:46 PM ET, Tue September 01 2015

Should Hotels Be Worried About the Latest Stock Market Volatility?

Hotel & Resort | Ryan Rudnansky | September 01, 2015

Should Hotels Be Worried About the Latest Stock Market Volatility?

In response to recent stock market volatility, on Tuesday, PKF Hospitality Research (PKF-HR), a CBRE company, reaffirmed its faith in the U.S. hotel industry moving forward.

While drastic movements in the stock market have some worried, PKF-HR is sticking to its positive projections for revenue per available room (RevPAR), average daily rate (ADR), occupancy, demand and other major hotel performance metrics.

"It is hard to ignore what has been happening on Wall Street, but the forecasts of employment and income that we rely on to prepare our estimates of future lodging supply, demand and average room rates (ADR) remain strong," said R. Mark Woodworth, senior managing director of PKF-HR, via a release. "The recent volatility in the stock market is an indicator of the uncertainty that persists in the U.S. and world economies. However, the probability of a downturn in hotel industry performance remains remote."

PKF-HR still stands by its forecast that there will be strong RevPAR growth through 2018.

PKF-HR also expects the national occupancy rate to remain above 65.5 percent from 2015 through 2017, trumping the previous record mark of 64.7 percent set in 1995. This is after demand has outpaced supply for the last seven years.

"At such lofty occupancy levels, we are projecting ADR gains ranging from 5.0 to 6.3 percent over the next three years," Woodworth said. "Throw in the continued increases in occupancy, and you have some very meaningful ADR-driven RevPAR growth that, given the operating leverage characteristic of hotels, particularly at this level, will flow through nicely to the bottom-line."

All American chain-scale segments are projected to boast RevPAR growth of more than 6 percent in 2015 and 2016, according to PKF-HR.

“The RevPAR gains in the upper-priced segments will be driven mainly by growth in ADR,” Woodworth said. “The lower-priced properties will experience a more balanced mix of increases in both occupancy and ADR.”

Properties located at airports or near airports, as well as hotels in suburban areas, are expected to experience the greatest RevPAR growth. Recent ADR growth in 24 airport sub-markets is tracking at 6 percent or more. Regular large conventions that attract a lot of guests are also forcing other travelers to look elsewhere for lodging, creating a greater demand for hotels in the suburbs, according to John B. (Jack) Corgel, Ph.D., the Robert C. Baker professor of real estate at the Cornell University School of Hotel Administration and senior advisor to PKF-HR.

RevPAR growth is lagging in properties located along highways and in small rural markets.

While hoteliers simply cannot ignore the stock market entirely, PKF-HR is confident that even if the hospitality industry were to stumble, there’s still enough of a cushion in occupancy to offset a sudden decline.

“In real terms, prices are just now returning to their previous peak (before the economic recession),” Woodworth said. “The U.S. occupancy level is now a full three points above the 2007 mark. This performance premium represents a substantial cushion that should offset an unexpected decline in demand.”


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