US hotel market to hit bottom in 2009

A report by consultants PKF reveals declining demand and increasing supply will result in two years of decline for the hotel sector – the first time in two decades.

The US hotel sector is set to experience two years of decline as the industry battles against declining demand and oversupply, according to a report from real estate consultants PKF-Hospitality Research.

The downturn in the US economy is expected to have a negative impact on the outlook for the hospitality market, the report states, warning demand, occupancy, average daily rates and revenues per available room are all set to fall in 2008 and 2009.

However, the number of hotel projects coming on stream is set to increase over the same period, with a net increase of around 275,000 rooms due in 2008 and 2009 compared to the end of 2007 – a 6.2 percent increase.

Mark Woodworth, president of PKF-HR, said seven years after September 11, hospitality was once again experiencing a “set of circumstances [that] is propelling the industry towards the next trough.” He expected the industry slowdown not to be “as deep as the ones observed in 1981 or 1991, but it may take a little longer to fully recover.”

Demand for hotel space in 2008 is expected to fall by 0.2 percent and by 1.1 percent in 2009. It is expected to recover by 2010 growing by more than two percent. The report though highlights that in all the 50 US markets studied by PFK, nine regions, such as New York, Seattle, Atlanta and Boston, are set to see weak growth in revenue per available room in 2009, with 41 expected to see negative growth.

Woodworth added that the credit crisis would eventually benefit the industry, as hotel supply is constricted in the short-term. “We believe the existing restrictive financing environment will linger into 2009, thus delaying or preventing the start of hotel projects currently in the pipeline. Given the 12 to 24 month time needed to construct most hotels, we project a window of one to two years when the amount of hotel openings will be very limited. While the pace of supply growth will be waning, we will start to see a return in the demand for lodging accommodations.”