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No decline for business hotels in 2008

June 30, 2008 | Hospitality Industry

If you pay attention to headlines, it would be easy to conclude that the sky was falling, at least economically. Combined with the well-documented problems of the airline industry, it would be natural to conclude that the lodging business would be equally afflicted. But the numbers don't bear this out.

Bjorn Hanson, a consultant at PricewaterhouseCooper’s, forecasts that for 2008 demand will grow 0.8% domestically, compared with an average over the last 25 years of 2.2%. On the supply side he sees growth of 2.2% leading to pricing pressure, and it is this imbalance that is attracting concern because it will lead to a decline in occupancy.

This points up a perennial problem faced by the hotel business: The delay between the perceived need for additional rooms and their coming on line is so great that by the time they do appear, the economic cycle has often turned, with supply once again exceeding demand. It is this imbalance that leads to much of the volatility in the business.

According to a report from Smith Travel Research in Hendersonville, Tenn., supply of rooms will grow at an average annual rate of about 2% for 2007-09. These are rooms that were planned during the boom years of the mid-2000s. Now, with demand softening—the same report projects only 1.2% over the same period—there will be pressure on rates and consequently revenue.

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