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Pricing to dominate hotel RevPAR in 2012

January 24, 2012 | Hotel Marketing

Reflecting year-end 2011 results, an updated lodging forecast released today by PwC US anticipates pricing recovery to be the key driver of revenue per available room ("RevPAR") growth in 2012.

Despite a year that was marked by macroeconomic uncertainty, and resulting shaky consumer and business confidence, hotels in the US ended 2011 on a strong note. Lodging performance exceeded expectations in the fourth quarter, in part due to a short-term uptick in economic activity. Hotels across the spectrum of price segments experienced occupancy and average daily rate ("ADR") gains in 2011, reflecting the breadth of the recovery. Overall, hotel occupancy in 2011 recovered to 60.1 percent, slightly ahead of its ten-year average of 60.0 percent. Despite a still-uncertain economic environment, improved occupancy levels and a recovery in travel are expected to give hotels the confidence to increase prices in 2012. PwC's latest lodging industry forecast expects RevPAR growth of 6.5 percent in 2012, heavily driven by ADR increases.

PwC's updated quarterly lodging forecast reflects an updated macroeconomic forecast released earlier this month from Macroeconomic Advisers, LLC, which expects economic growth in the US to continue to be weighed down by spillover effects from the sovereign debt crisis in Europe. Macroeconomic Advisers' outlook expects slow real gross domestic product ("GDP") growth during the first half of 2012, followed by a gradual acceleration in economic activity, reaching an above-trend pace of 2.9 percent annualized growth by the fourth quarter.

In the face of a still-uncertain economic environment, the outlook for improved pricing in the lodging sector reflects the ongoing recovery of business travel, as well as gains in corporate events and other group business. As a result, lodging demand in 2012 is expected to increase 1.8 percent, which combined with restrained supply growth of 0.5 percent, is expected to boost occupancy levels to 60.9 percent, the highest since 2007. Increased confidence from occupancy gains, particularly in the higher-priced segments of the industry, is expected to allow hotels to achieve valuable increases in room rates. As a result, ADR is expected to increase by 5.1 percent in 2012, driving a RevPAR increase of 6.5 percent.

"It will have been a five-year detour, but continued recovery in 2012 is expected to lift industry RevPAR very close to its 2007 peak," said Scott D. Berman, principal and U.S. industry leader, hospitality & leisure, PwC. "The steepest portion of the demand recovery is behind us with operators' focus on room rate becoming increasingly more important."

Get a full copy of PwC's US Lodging Forecast at pwc.com

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