Report Says Acceleration in Group Bookings to Drive Highest Occupancy Levels in 20 Years

| September 01, 2014

An updated lodging forecast released by PwC US www.pwc.com/US anticipates stronger occupancy gains in 2014, setting the stage for 2015, during which PwC US anticipates the highest occupancy levels in 20 years. As the economy rebounded from a weather-related slowdown in the first quarter of 2014, travel activity picked up significantly in the second quarter, resulting in better than expected occupancy performance, and average daily rate results that were only slightly less than anticipated.
 
While transient travel – both commercial and leisure – continues to show steady gains, hoteliers are reporting strong trends in the group segment, which still has room to recover to peak levels.  This increased momentum of demand growth in the second quarter and a robust summer travel season also resulted in public lodging companies increasing their guidance on revenue per available room (“RevPAR”) growth for the year.  This, coupled with continued growth in group demand and steady above-trend economic momentum, supports PwC’s expectation of a solid 7.6 percent RevPAR increase in 2014.  In 2015, supply growth is expected to accelerate, resulting in decelerating occupancy growth. 
 
Still, industry-wide occupancy levels are expected to reach 64.8 percent in 2015, the highest since 1995, giving hotel operators more confidence to push for higher room rates.
 
The updated estimates from PwC are based on a quarterly econometric analysis of the lodging sector, using an updated forecast released by Macroeconomic Advisers, LLC in August and historical statistics supplied by Smith Travel Research and other data providers. Macroeconomic Advisers expects real gross domestic product ("GDP") to increase 2.0 percent in 2014, and accelerate to 3.1 percent growth in 2015, measured on a fourth-quarter-over-fourth-quarter basis.
 
Based on this analysis, PwC expects lodging demand in 2014 to increase 4.0 percent, which combined with still-restrained supply growth of 1.0 percent, is anticipated to boost occupancy levels to 64.1 percent. PwC’s outlook expects accelerating supply growth of 1.6 percent in 2015, as construction of new hotels gathers momentum (up over 50 percent in the second quarter, compared to the same quarter last year), with supply growth in the higher-priced chain scale segments outpacing growth in the lower-priced segments.  Occupancy levels in the lower-priced chain scale segments are expected to approach or exceed prior peak levels, as price-driven compression from higher-priced hotels drives demand to lower priced hotels.

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