“We expect the factors that have inhibited lodging performance during the first half of 2013 will dissipate as the year goes on,” said R. Mark Woodworth, president of PKF-HR. “By 2014, any uncertainty caused by fears of fiscal cliffs and sequestration should be alleviated, thus resulting in improved attitudes among hotel guests, owners and operators.” One lingering concern among hoteliers may be the recent rise in interest rates. “Moody’s Analytics, our source for the economic forecasts that drive our econometric models, has been projecting a 150 basis point increase in interest rates by year end 2014. Accordingly, our positive lodging forecasts do incorporate any detrimental influence this may have on investments and inflation,” Woodworth noted. Occupancy Outlook For 2014, PKF-HR is forecasting a very strong 3.3 percent growth in lodging demand, along with a projected increase in supply of just 1.0 percent. The net result is a national occupancy level of 63.8 percent in 2014, the highest annual occupancy rate since 1997. High occupancy levels are most prevalent in upper-tier hotels where PKF-HR is forecasting rates to remain above 70 percent through 2017. “Since most conventions and meetings are held in the larger, luxury and upper-upscale properties, this will present a challenge for planners,” Woodworth added. “Events will have to be booked further in advance, and planners are starting to concede the need to pay higher room rates.” Rates and Profits “Throughout the recovery, we have been pleasantly surprised by the surge in demand. That being said, the growth in average daily rates (ADR) has been underwhelming,” said Woodworth. “Starting in 2014, we foresee economic and market conditions that should allow managers to become more aggressive with their pricing policies.” From 2014 through 2016, PKF-HR is forecasting annual ADR growth rates ranging from 5.4 to 6.4 percent. As a result of the strong projections of ADR growth, PKF-HR also is forecasting some attractive gains on the bottom-line, as well. “With ADR driving RevPAR in the years to come, we forecast double-digit, unit-level NOI increases through 2015, a trend that started in 2011. We have not seen such a sustained period of profit improvement since the inflationary days of the 1970s,” Woodworth stated. Budgeting is Local Prior analysis conducted by PKF-HR found that 80 percent of a property’s performance is influenced by local market conditions. Accordingly, PKF-HR advises its clients to attain a thorough understanding of the factors that influence the business environments in which their properties operate. “Each June, as owners and operators begin to prepare their budgets for the upcoming year, we see a concurrent interest in our local market forecasts, and that’s very encouraging,” said John B. (Jack) Corgel, PhD., the Robert C. Baker professor of real estate at the Cornell University School of Hotel Administration and senior advisor to PKF-HR. “Among the 50 markets covered by our June 2013 Hotel Horizons® reports, we see 2014 RevPAR forecasts ranging from a low of 2.6 percent (New Orleans) to a high of 10.2 percent (Oakland). This just proves the localized nature of the lodging business.” The following statements highlight PKF-HR’s 2014 outlook for the 50 markets in the Hotel Horizons® universe: - Supply growth is estimated to be 1.0 percent or less in 27 markets. - 33 markets are forecast to achieve occupancy levels at or above their pre-recession peak levels. - Two markets are projected to suffer a decline in demand, but five markets are forecast to experience a decline in occupancy. - 39 markets are forecast to achieve ADR levels at or above their nominal pre-recession peak. - 17 markets are projected to see ADR grow by 6.0 percent or more. - 20 markets are forecast to enjoy RevPAR growth greater than 7.0 percent. “Overall, we remain bullish on the nation’s major lodging markets in 2014. All 50 of the cities we track are expected to enjoy an increase in revenue during the year, but the diversity of the composition of supply, demand, and pricing changes that will fuel the revenue growth is something worthy of further investigation by industry participants as they prepare their marketing plans and budgets for the upcoming year,” Woodworth concluded. Related Link: PKF Hotel Horizons