Forecast: Robust levels for occupancy, RevPAR

The national hotel occupancy average is projected to hit 64.2% this year, the highest occupancy average in a decade, according to a new forecast by PricewaterhouseCoopers.

Over the past 12 months, the occupancy average has been at 63.7%; the average occupancy typically doesn't push past 59% or 60%. The higher-than-average occupancy is expected to bolster RevPAR, a key economic indicator for hotels, by 8.7%, the highest level since 1980, when RevPAR rose 12.6%.

The firm's research indicates that in 12 major city markets RevPAR is expected to grow from 4.7% to 9% next year.

The projected increase in RevPAR and the increase in occupancy are both good news for the hotel industry, which has been riding high for several years.

"The lodging industry continues to benefit from a surprisingly slow rate of supply growth for this phase of the cycle and a robust economy that, despite higher energy prices, is supporting growth in personal consumption expenditures," said PWC's Bjorn Hanson. "At the same time, inflationary pressures allow hoteliers to exercise double-digit increases in room rates in many lodging markets."

Still, robust occupancies and RevPAR notwithstanding, PWC is forecasting an eventual slowdown due to a rise in room supply and a softening in demand.

That is expected to begin next year as the overall economy loses some steam due to a projected weakening of the housing market, higher interest rates and energy costs. As a result, the national hotel occupancy average is expected to inch up only slightly, to 64.3%, in 2007.

One place where hotels are earning less is on telephone service.

The growing popularity of wireless phones and other communication devices has resulted in a 16% decline, compounded annually, since 2000 in the revenues derived from telecommunications services.

PWC found that the telecom revenue earnings per occupied room dropped from $4.96 in 2000 to $2.26 in 2005.

To compensate, hotels have tacked on fees and surcharges, which over the past six years have compounded the decline in revenue by as much as 14.5% in full-service hotels and 17.8% in their limited-service counterparts.


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