Hotels are poised for significant gains in all the major metrics in 2014; according to the recently released June 2013 edition of Hotel Horizons®, is projecting that US hotels will enjoy a 7.7 percent increase in revenue per available room (RevPAR) in 2014, along with a 15.4 percent boost in net operating income (NOI).

The factors that have inhibited lodging performance during the first half of 2013 are expected to dissipate as the year goes on. 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, PKF-HR's 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.

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. 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, PKF-HR has been pleasantly surprised by the surge in demand. Conversely, the growth in average daily rates (ADR) has been underwhelming. 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.

With ADR driving RevPAR in the years to come, PKF-HR forecast double-digit, unit-level NOI increases through 2015, a trend that started in 2011. The U.S. lodging industry has not enjoyed such a sustained period of profit improvement since the inflationary days of the 1970s.

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. 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 demonstrates 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, PKF-HR remains 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 years.



To purchase a June 2013 Hotel Horizons® report, please visit www.hotelhorizons.com. Reports are available for each of 50 major metropolitan areas in the U.S., and contain five year projections of supply, demand, occupancy, ADR, and RevPAR. A video summarizing our June 2013 forecasts will soon be available at www.pkfc.com.