ATLANTA — Healthy real estate fundamentals in the U.S. lodging industry are setting the stage for another prosperous year for hotel owners and operators, say industry experts. Indeed, Atlanta-based PKF Hospitality Research expects revenue per available room (RevPAR) to increase 6.1 percent in 2013 and the average daily rate (ADR) to rise 5 percent. What’s more, PKF is forecasting that room demand will rise 1.8 percent this year, easily outpacing a 0.8 percent increase in supply (see table).
“Are there some things we should be worried about? No,” said Mark Woodworth, president of PKF. “The fundamentals are as solid, if not more solid, than in the 30-plus years that I’ve been following the hospitality market.”
The positive outlook from Woodworth is one of the storylines to emerge from Wednesday’s opening day of the 25th annual Hunter Hotel Investment Conference at the Marriott Marquis in downtown Atlanta. More than 900 industry professionals have registered for this year’s conference — titled “Moving Forward with Confidence” — which runs through Friday.
Taking a longer view, PKF forecasts that ADR growth for the U.S. hotel industry will be double the historical average through 2015, leading to similar gains in RevPAR. “If you look back at history, you’ve never seen a period like this,” said Woodworth. “So, if our forecast ends up being true, then we’ll all look back and say those were some really good times.”
A closer look at individual markets shows that Houston is expected to post an average annual increase in RevPAR of 8.8 percent through 2016, followed by Newark, N.J. (8.7 percent), and Oakland, Calif. (8.2 percent). Even the so-called lagging markets are expected to post relatively modest gains in RevPAR annually through 2016. For example, PKF forecasts the average annual increase in RevPAR in New Orleans through 2016 to be 4.1 percent (see chart).
Although the RevPAR outlook is robust, appreciation of hotel properties is still lagging other property types, according to data from the National Council of Real Estate Investment Fiduciaries. Hotel data complied from the first quarter of 2010 through the fourth quarter of 2012 shows the percentage of appreciation ranks below other property types including multifamily, industrial, office and retail (see table).
Woodworth said the reason for the lack of appreciation might stem from how hotel properties receive their revenue. “We are unlike other property types in that we have 24-hour leases. When [economic] uncertainty dissipates we should look for hotel property values to pop.”
While hotel sales transactions are from anemic, Woodworth says that political and economic uncertainty will cause transactions to be below normal levels of buying and selling activity and also result in diminished new construction in the near term.
The Hunter Hotel Conference provides scholarships to hospitality students of Georgia State University’s J. Mack Robinson College of Business.
— Rachel Goff