In 2016, ADR Reluctantly Takes the Driver’s Seat

An updated lodging forecast released today by PwC US expects revenue per available room (“RevPAR”) growth in 2016 to continue, increasing by 5.5 percent, despite signs of potential economic concerns. Performance of the US lodging sector during the fourth quarter of 2015 was lackluster, with hotels struggling to meaningfully increase average daily rates (“ADR”), even as occupancy levels continued to increase, albeit at a slower pace.

The overarching question related to the lack of ADR growth, despite peak occupancy levels, raises concern in the industry. However, underlying corporate and leisure travel demand trends remain favorable, contributing to still increasing occupancy rates, which are at the highest level since 1981.

The estimates from PwC are based on a quarterly econometric analysis of the lodging sector, using an updated forecast released by Macroeconomic Advisers, LLC in January, and historical statistics supplied by STR and other data providers. Macroeconomic Advisers expects real gross domestic product (“GDP”) to increase 2.4 percent in 2016, measured on a fourth-quarter-over-fourth-quarter basis, approximately 10 basis points lower than in PwC’s November lodging industry outlook. Macroeconomic Advisers’ reduction in GDP growth is primarily driven by less economic momentum and less favorable financial conditions, including a strong US Dollar.

Based on this analysis and recent trends, PwC expects lodging demand to remain strong in 2016, driven by a number of factors including continued strong fundamentals of employment, wages, and wealth as well as improving group demand. The pace of growth in the supply of hotel rooms is expected to increase to 1.9 percent, reaching the long-term average. As a result, PwC’s outlook anticipates a marginal increase in occupancy levels to 65.7 percent; the highest since 1981.

Read rest of the article at: Hotel Online