Golden Gate BridgeEverything in moderation.

That seems to be the mantra of hotel industry analysts for 2012 after better-than-expected hotel demand this year appeared to put a brutal 2009 out of memory.

Analysts say revenue per available room among U.S. hotels will advance by about 5% or so, down from about 8% this year, as continuing questions about the global economy and tougher year-over-year comparisons will slow occupancy growth to a crawl.

The difference between this year and next, though, is that any gains in demand will likely push pricing more than occupancy rates, as hotel owners look to take advantage of the combination of rising demand and stagnant supply.

Advancing the bottom line

"Owners and operators are now focused on more aggressive pricing policies, which in turn will translate into strong growth in hotel profits," Mark Woodworth, president of PKF Hospitality Research, said in a statement. "We believe market conditions during the next few years will allow them to achieve these goals."

Granted, it's not yet time for hotel operators to celebrate or for travelers to bemoan the prospect of surging hotel-room prices, at least in most markets. Bjorn Hanson, divisional dean of New York University's school of tourism and hospitality management, estimated that U.S. room demand will increase by about 2% next year, down from a 5% increase in 2011.

Additionally, both Smith Travel Research and consultant PricewaterhouseCoopers cut their forecasts late in the year, indicating that stubbornly high unemployment rates and a still-stagnant housing market will partially offset the effect of higher business-travel spending.

STR's forecast reduction was more dramatic. In November it reduced its 2012 growth forecast for U.S. RevPAR to 3.9% from its prior 2012 forecast of 7%. Unlike this year, STR said, the 2012 increase will stem almost exclusively from room-rate increases, as occupancy will edge up just 0.2 percentage points.

Meanwhile, PwC last month slightly muted its enthusiasm for 2012 growth in hotel demand, cutting its RevPAR growth forecast to 6.5% from its May forecast of 7%. The consultancy said 2012 occupancy would surpass the 60% mark for the first time since 2007, while room rates would advance 5.2%. And this month, PKF said U.S. hotel RevPAR would increase 6.1%, about the same as its forecast in November.

"Continued improvement in travel in general and the return of corporate meetings and events, particularly in primary U.S. markets, is expected to drive RevPAR recovery in 2012," Scott Berman, PwC's principal and U.S. industry leader of hospitality and leisure, advised in a November statement. "However, economic factors, both at home and abroad, continue to weigh on the lodging sector, elevating the risk that further disruption or erosion of confidence may impact performance into 2012."

Much of the reason why hotel companies will be able to raise rates is because supply will be little changed, as hotel-development financing virtually stopped in 2009 and many of the projects that have been green-lighted since then are still years away from coming online.

Moreover, investors are still wary. The North American hotel-development pipeline is just about half as large as it was in 2008 just prior to the financial meltdown, according to the Portsmouth, N.H.-based research firm Lodging Econometrics.

Because supply will remain at a virtual standstill, U.S. markets that performed the strongest this year, such as San Francisco, Oahu, Nashville and Los Angeles, will likely continue to see gains, especially in rates, in 2012.

Central ParkNew York could be the exception, because it's one of the few markets experiencing substantial hotel-room growth.

"Rate forecasts are strong, 5% to 7% growth, in some major markets that have returned to historical occupancy levels," said Rick Swig, president of hotel consultancy RSBA & Associates. "I think that these may even go higher."

Meanwhile, performance within hotel sectors will mirror that of the U.S. economy in that, sector-wise, the rich will continue to get richer. PKF estimated that the top three hotel tiers -- luxury, upper-upscale and upscale -- will have a collective occupancy rate next year about 10 percentage points better than the 60% threshold that the market as a whole will cross next year. On the flip side, midscale and economy hotels will have occupancy rates in the 55% range next year, according to PKF.

Top tiers will boom

"The most positive 2012 RevPAR increases will be in luxury, upper-upscale and upscale, the three highest ADR segments, all around 7%," Hanson predicted. "But the percentage increases in luxury and upper-upscale are in part because they experienced the largest decreases this cycle."

How much these rate increases translate to hotel owners' bottom lines remains to be seen, however. Many hotel operators and franchisers eased requirements for repair, maintenance and improvements in recent years to help hotel owners survive during the 2008-2009 period when occupancy dropped below the 55% threshold and rates plunged by about 20%. Now these operators are expecting more capital expenditures among their owner-partners.

A case in point is InterContinental Hotels Group, which said this year that it will try to push its Crowne Plaza brand upmarket to compete with Hilton, Hyatt, Sheraton and Marriott in the upper-upscale sector. IHG expects to bounce 10% of its approximately 400 hotels as a result of hotel owners who won't comply with the upgrades.

Meanwhile, countries like China, India and Brazil will continue to experience some of the world's fastest growth rates in terms of both supply and demand. China alone accounts for about a third of the world's hotel-development pipeline, with U.S. companies such as Starwood, Marriott and Hilton racing to join China-based hotel groups like Home Inns and Jin Jiang to take advantage of what's likely to be a continued surge in both local and inbound travelers.

Additionally, Moscow's expanding wealth and the expected influx of travelers to Sochi for the 2014 Winter Olympics will feed hotel development in Russia, while hotel demand in Western Europe, save for a London market propelled by the 2012 Summer Olympics, will remain in flux amid questions surrounding the European debt crisis.

"China still will boom," Swig predicted. "Europe may be iffy, but it's day to day depending on currency games and politics. The big U.S. question is New York, which is the only major market with supply increases."

For hotel and hospitality news, follow Danny King on Twitter @dktravelweekly.


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