According to STR’s revised forecast for 2010 and 2011, recovery could be influenced by things such as tax changes and health-care reform. The means a rebound will come quicker in 2010 but could get slow as 2011 unfolds.

“We think the recovery will pick up its pace during the second and third quarters of this year, then it will moderate,” said Mark Lomanno, STR’s president.

*old forecast was distributed in January 2010

Lomanno said the most important reason for dramatic changes in the forecast can be traced to better-than-previously-anticipated occupancy rates.

“Given the developing trends, we moved up the time frame for demand recovery,” he said. “The easy comparisons to last year’s performance in the first three months will show significant demand improvements over 2009. With that will come a little stronger ADR growth.”

One aspect that shouldn’t be dismissed is that a positive atmosphere can produce some improvement, according to Lomanno.

“Pricing is as much about psychology as it is about facts,” he said. “When people see demand growth numbers in the 4-, 5- or 6-percent range for a few months, it will embolden them to increase ADR.”

Demand side

Contrary to previous thinking, STR now believes demand growth will be stronger in 2010 than in 2011. The company said demand will grow 4.1 percent in 2010 and 2.9 percent in 2011. When STR crunches March 2010 data in the middle of April, it is expected that it will emerge as the fourth consecutive month to show demand growth

“The recovery will slow down late in the fourth quarter of 2010 and in early 2011,” he said. “2.9-percent demand growth in 2011 is nothing to sneeze at. It’s double the 20-year average for demand growth (1.4 percent), but there are some external forces at work that have caused the demand cycle to be altered.”

Lomanno said the belief is that 2011 will be a much more cumbersome year tax wise than 2010, so companies will accelerate business as much as possible in 2010, recognizing they will pay more taxes in 2011 because of new government obligations.

“In this kind of recovery, the real engine that will propel it on an upward trajectory will be jobs growth, which hasn’t happened yet,” he said. “When job growth comes back, that’s when real demand growth will kick in.”

Lomanno said the Hendersonville-based company expects group business to return to hotels by 2012 or 2013, but a portion of what it was during the peak years of 2006, 2007 and 2008 won’t ever return.

Supply side

STR projects supply to grow by 2.2 percent in 2010 (up from the previous forecast of 1.8 percent) and 1.0 percent in 2011 (the same as the previous forecast).

Lomanno said even during the deepest downturn in memory, hotel developers didn’t stop doing what they do.

“Hotel development is never done,” he said. “The conventional wisdom is that development dried up in 2009, but the reality is that the industry started construction on 35,000 rooms. We expect that to continue in 2010.

“Even though this forecast is significantly better than last one, the supply growth actually went up. That’s not typical,” he said.

Adding to the problem is that few rooms are closing.

“Last year was the smallest number of rooms closing in a decade when you thought it should have been the highest,” Lomanno said. “The only things closing now are the billboard type properties. In ’04, ’05 and ’06 what was closing are little mom and pops that no one noticed. It’s a different kind of closing today, and the reality is that they are absolutely coming back into the supply at some point.”

STR’s updated forecast is a sign of the up-and-down nature of the economy, Lomanno said. It also indicates there are better times ahead.

“Not only the worst is over, but there is improvement and maybe there will be some pricing power,” he said. “But we don’t have complete confidence that the industry will embrace that to the level it could until well into next year—when it could easily do it this year.

“The takeaway is that 2010 is going to be significantly better than (hoteliers) thought it would be, and they plan their strategies accordingly,” he said. “It won’t be back to 2007 or 2008 levels, and there will be easy (comparisons to last year). 2011 will be a good year on top of a good year, and that is something we haven’t seen in awhile.”

Published by:  HOTELNEWSNOW.COM

Date Published:  April 6, 2010

By:  Jeff Higley – Editorial Director

PKF-HR is forecasting hotel rooms revenue to grow 10.5 percent on a per-available-room basis (RevPAR) in 2012. “The U.S. lodging industry has not seen double-digit growth in RevPAR since the inflationary days of the late 1970s and early 1980s,” said R. Mark Woodworth, president of PKF Hospitality Research. “The strong growth in RevPAR is driven by Moody’s Economy.com’s forecasts for income and employment. In 2012, Moody’s is projecting income to grow at a 4.4 percent pace, something we have not seen since 2006. In addition, the 3.2 percent forecast growth for employment that year is an all-time high since 1988.”

Until 2012, however, market conditions will remain relatively soft. For 2010, PKF-HR is forecasting a 1.1 percent decline in RevPAR, the third consecutive year of falling RevPAR for the U.S. lodging industry. “Fortunately for hotel owners and operators, as economic conditions begin to turnaround in 2011, so should travel and the pricing power of hotel managers,” Woodworth said.

Turning

While PKF-HR is forecasting a 1.1 percent annual decline in 2010 RevPAR, lodging market conditions will turn and improve throughout the year. In fact, as PKF-HR forecasted back in March of 2009, the demand for hotel rooms has been greater during the first quarter of 2010 than it was during the same period the prior year. This growth in demand is expected to persist throughout the year and result in an annual increase in rooms occupied of 1.5 percent.

Concurrent with the growth in demand is a reduced rate in the number of new hotel rooms opening. Supply is forecast to grow 1.2 percent in 2010, down from the 3.2 percent net increase in new rooms that came on line in 2009 according to Smith Travel Research (STR). With demand rising at a 1.5 percent pace, the average occupancy rate for the U.S. lodging industry should increase 0.3 percent to 55.2 percent in 2010. “This is obviously not great growth, but it is a step in the right direction after three years of declining occupancy,” Woodworth noted.

Unfortunately for U.S. hoteliers, a national occupancy level below the 60 percent mark means that rate discounting will persist. PKF-HR does not believe that quarterly ADR will exceed 2009 levels until the third quarter of 2010. “Hotel managers know only too well that cutting room rates rarely results in increased profits. However, given the competitive conditions implied by occupancy rates in the 50s, many operators have once again employed the strategy of establishing a base of contract business to reduce their available inventory,” Woodworth observed. “Such a tactic should position these operators to better capitalize on improving demand conditions: more aggressive pricing policies should result.” PKF-HR forecasts ADR will increase 3.4 percent in 2011 after declining 1.4 percent in 2010.

Segments and Cities

Just two of six chain-scales are forecast to benefit from an increase in RevPAR in 2010. PKF-HR is projecting luxury hotels will enjoy a healthy 5.1 percent increase in RevPAR, while properties in the midscale without food and beverage segment will see their RevPAR rise 0.6 percent. In both segments, it appears that discounted room rates will be required to increase occupancy.

“The most prevalent rate discounting is forecast to occur in the upper-upscale segment,” Woodworth noted. “Most big-box convention hotels fall into this category, so the decline in ADR reflects the negotiating leverage currently held by meeting planners.” Hotels in all six chain-scales are projected to experience a decline in ADR during 2010.

Looking across the country, RevPAR for five of the nation’s 50 largest markets is forecast to increase 6.0 percent or more in 2010. In Newark, Boston, and Anaheim, RevPAR gains will be driven mainly by increases in occupancy. Conversely, rising room rates will propel RevPAR growth in Oahu and Salt Lake City.

The cities forecast to experience the greatest RevPAR declines in 2010 are Baltimore, Phoenix, Austin, Washington DC, and Houston. For the most part, the RevPAR losses in these cities are the result of ADR declines in excess of 2.0 percent. The one exception is Baltimore, which is one of two U.S. markets projected to suffer from a decline in demand in 2010. The drop in Baltimore demand can be explained by the comparison to a relatively strong 2009.

The Bottom Line

“The composition of RevPAR change impacts a hotel’s bottom line. In general, RevPAR growth that is driven by ADR is more profitable,” Woodworth explained. “Given that declining room rates will offset the slight gain projected for occupancy, PKF-HR is forecasting a 5.3 percent decline in unit-level net operating income (NOI) in 2010.”

The 5.3 percent profit decline forecast for 2010 follows an estimated 35 percent fall in 2009. “Looking at the preliminary 2009 data from this year’s Trends® in the Hotel Industry research, managers were able to cut their expenses by approximately 13 percent. Unfortunately these reductions were not enough to overcome the 15 to 16 percent decline in total revenues,” Woodworth said.

Layoffs, along with salary and wage reductions, resulted in a 12.5 percent decline in labor costs, the greatest single expense at a hotel. Other significant cuts were made in the rooms (-12.0 percent), A&G (-14.6 percent), marketing (-12.0 percent) and utilities (-10.4 percent) departments.

Consistency Leads To Efficiency

“I’m sure our forecast of continued declines in revenues in 2010 concerns lodging industry participants. Nonetheless, our forecast for 2010 did not change much since December of 2009, and U.S. hoteliers should be encouraged by this level of consistency,” Woodworth commented.

“Given the degree of accuracy of our forecasts for the fourth quarter of 2009, and the consistency of our outlook for 2010 and beyond, hotel operators should feel increasingly confident about what the playing field will look like for the near- and mid-term. Now they can operate in a more efficient manner,” Woodworth said. “With a clearer picture of the future, hotel managers will be able to implement pricing policies, purchasing practices, and staffing decisions that will maximize revenues and control costs.”

Published by: HotelWorld Network

Date Published: March 23, 2010

CAMPBELL - Despite the downturn walloping the hospitality industry, a hotel 10 years in the making is on track to open in Campbell in December. Huntington Hotel Group is well aware of the industry’s double-digit declines in occupancy and room revenue, but the Irving, Texas, developer still plans to open its seven-story, 162-room Marriott Courtyard on Creekside Way near the Hamilton Avenue exit of Highway 17.“We’ve been through the ’90s and 9/11 – we’ll get through this one,” said Mike Siegel, vice president of Huntington’s operations.

This wasn’t the plan or the prognosis when Huntington purchased the 3.5-acre site from Peter Pau’s Sand Hill Property Co. in July. Hospitality was a favored sector for commercial real estate investors, but that was before the calamitous economic events in September.

“At the time, San Jose occupancy and its business climate looked like it was coming along well,” Siegel said. “We thought it was time for a new product on the market.”

Campbell city officials had selected the site for a hotel in the late 1990s.

Kirk Heinrichs, Campbell’s redevelopment manager, called the parcel near the Pruneyard office towers, downtown Campbell and the Hamilton Avenue light-rail stop a “great location.”

The hotel, valued at $37 million in 2008, was expected to bring the city $500,000 a year from the 10 percent transient occupancy tax, Heinrichs said, but expectations have been scaled back.

Siegel noted the primary element that attracted his firm to the site hasn’t changed. Huntington’s strategy is to develop hotels in markets with high barriers to entry, meaning it takes years, not months, to obtain approvals to build.

“We’ll take the time to work with a difficult real estate deal,” he said, adding “We felt very lucky to pick this up from Peter Pau.”

Given what he knows now about the market, Siegel said he would have waited before buying. But time is money, he said, so Huntington will finish construction.

Tom Callahan, CEO of PKF Consulting, a hospitality industry adviser, knows the site because his firm had worked with Pau to develop it. He said Huntington, a small but well-regarded developer, is smart to finish the hotel.

Courtyard Marriott San Jose Campbell

Callahan said the project’s timing is unfortunate but hardly a huge surprise given the cyclical nature of real estate.

“This project was in the works before the downturn of the tech wreck,” he said. “Real estate just takes a long time to get moving. It’s impossible to predict, and it takes a little bit of luck.”

Unfortunately the downturn is not predicted to improve for several years. After showing double-digit growth in profits in 2005 and 2006, the number of travelers and room rates showed signs of weakness in early 2008 but still continued to grow until the third quarter. At that point slow growth turned into double-digit declines of 20 to 30 percent.

Analysts predict the downturn will send hotels developed or traded during the past four years into bankruptcy because the deals were heavily leveraged.

“Seventy percent of development costs or acquisition costs was debt,” Callahan said. “In all those properties, the debt was wiped out. Any property traded or built since 2005 has depreciated in value by 30 percent.”

Huntington, which began in 1992, is a private company, and Siegel was unwilling to disclose financial figures, but he said his firm is invested for the long term. He also hopes the next-door office site owned by South Bay Development Co. will be developed eventually.

When it opens, the Marriott will employ 50 people. Among its attractions are an interactive multimedia screen where guests can find nearby restaurants, entertainment and driving directions. The hotel will also offer bistro restaurants.

Huntington owns or operates 15 hotels in Maryland, Texas and Southern California. Most of the hotels are Marriotts, but a few are Hiltons.

View Original Article

SAN DIEGO, CALIFORNIA- Huntington Hotel Group showed a devotion to detail in developing their San Diego Airport/Liberty Station Courtyard by Marriott. The site chosen for this property is located in a historic district of San Diego, and with that came many confining building regulations and requirements. The efficiency with which Huntington overcame the obstacles in both construction and operation is what led to this property receiving the 2008 Courtyard Opening Hotel of the Year Award.

Before the official opening of the hotel, the Huntington team developed a Vision Statement that bound each associate to guaranteeing that guest experiences would be of the highest quality. Furthermore, Huntington had also envisioned that this hotel would make a difference in its community and made sure of this by raising $3,000 for the San Diego Food Bank.

San Diego Airport/Liberty Station Courtyard by Marriott

View Original Article Here

Download PDF