The lodging sector is anticipating to approach a stabilization phase in 2007, with accelerated supply growth and modest demand. Lodging Econometrics forecasts approximately 1,100 new projects in the U.S. in 2007 (116,000 rooms), representing a 2.5% supply increase compared to a 1.8% increase in 2006.

As the lodging industry's current positive cycle matures, most segments are enjoying the benefits of strong fundamentals, which lead to future increases in supply. One segment, however, stands out as the leader in both recent performance and supply growth. According to Smith Travel Research, the luxury hotel segment has led in occupancy growth, and is estimated to have achieved demand growth of approximately 2.0-2.5% and rate growth of approximately 9.0% in 2006.

While the U.S. lodging industry experienced double-digit profit growth in 2006, hotel operating costs increased at almost twice the rate of inflation for the same period, with the greatest increases occuring in areas that traditionally experienced little volatility. Labor, energy, insurance, and real estate taxes all impeded the industry's ability to achieve higher profit margins. As a result, management's focus is on fine tuning expenses that can be controlled, understanding that there are now operating paradigms that will result in some operating expenses remaining at their current high levels.

Download the full report "Hospitality Industry - Top 10 Thoughts for 2007" by Ernst&Young (PDF 170KB)