U.S. hotel room rates slow their advance

Real Estate Weekly, March 17, 1999

As occupancy at U.S. hotels dips further below the 25-year average in 1999, the lodging industry will experience growth in average daily room rates at its slowest pace in five years. Even so, average daily room rates will creep up, with Upper Upscale and New England hotel rates leading the pack, fueling a third consecutive year of record profits for the lodging industry.

So reports the Lodging Research Network, the Internet-based resource for lodging industry data and information from PricewaterhouseCoopers, the world's largest professional services organization. The findings were issued recently at the 14th Annual UCLA Hotel Industry Investment Conference at the Century Plaza Hotel in Los Angeles.

"Average daily room rates, which have risen robustly since 1994, will slow their growth to 3.9 percent in 1999 - from 4.5 percent in 1998 and 6.2 percent in 1997," says Bjorn Hanson, Ph.D., New York-based global partner for hospitality and leisure in the PricewaterhouseCoopers Financial Advisory Services (FAS) practice. "In part, this is a reflection of the U.S. lodging industry's lower occupancy rate, which will fall further below the long-term average of 65 percent to 63 percent in 1999 from 63.9 percent in 1998," Dr. Hanson added.

But at 3.9 percent, the 1999 rise in average daily hotel room rates is nearly twice the U.S. Consumer Price Index (inflation) rate, which is forecast to be 2.1 percent this year, Dr. Hanson observed. "The revenue that comes from room rates higher than inflation will certainly sweep the U.S. lodging industry to another year of record profits at approximately $20.5 billion in 1999, up from $18.9 billion in 1998."

By segment, Upper Upscale U.S. hotels will see the greatest rise in average daily rates at 5 percent, according to the Lodging Research Network. Next are Midprice-without-Food-and-Beverage hotels at 4.5 percent; Upscale hotels at 4.4 percent; Economy hotels at 3.5 percent; and Midprice-with-Food-and-Beverage at 3.4 percent, wwwlodgingresearch.com forecasts.

By geography, New England (ME, NH. VT, MA, CT, RI) hotels will lead the nation in average daily room rate growth at 4.6 percent in 1999, followed by: the U.S. South Atlantic (DE, MD, WV, DC, VA, NC, SC, GA, FL) region at 4.1 percent; the nation's Pacific (WA, OR CA, AK, HI) and Middle Atlantic (NY, NJ, PA) regions at 4 percent each; the East North Central (OH, MI, IN, IL, WI) region at 3.9 percent; the West South Central (AR, LA, OK, Tx) region at 3.5 percent; the West North Central (MN, IA, MO, KS, NE, SD, ND) region at 3.4 percent; the East South Central (KY, TN, AL, MS) region at 1.5 percent; and the Mountain Region (MT ID, WY, CO, UT, NV, AZ. NM) at 0.9 percent.