Worst year ever. That’s how a lot of hotel industry observers are looking back at 2009. Just consider the stats. Revenue per available room was down 17 percent to $53.71, occupancy dropped 9 percent to 55 percent, and average daily rate decreased 9 percent to $97.51, according to Smith Travel Research’s year-end report.
"Good riddance to 2009," said Mark Lomanno, president, STR, in a news release. "The combination of a distressed economy in conjunction with panic pricing drove RevPARs down to levels that were virtually incomprehensible just a year and a half ago.”
How bad was it? Not one of the top 25 markets reported an increase in 2009 in any of the three key metrics. Instead, success in 2009 was measured by how small the decreases were:
- The only two markets with single-digit declines were Norfolk-Virginia Beach (-8 percent) and Washington, D.C. (-8 percent).
- The only markets with occupancy declines of less than 5 percent were Norfolk-Virginia Beach (-3 percent), Washington, D.C. (-3 percent), and Oahu, Hawaii (-2 percent).
- The only market to post a year-end ADR decrease of less than 5 percent was New Orleans (-4 percent).
New York City reported the largest ADR decrease, falling 21.8 percent to $215, followed by Phoenix, which experienced a drop of 15.4 percent to $105.72. Houston ended the year with the largest occupancy decrease, falling 17 percent to 55.8 percent because of the lingering effects of Hurricane Ike.
What will 2010 bring? Hotel experts speaking at the 2010 Professional Convention Management Association Annual Conference in Dallas in January tried to sort it out. Jonathan Tisch, chairman and CEO of Loews Hotels, warned of more trouble ahead for the hotel industry. “Hotels are highly leveraged and can’t refinance. In 2011 and 2012, many hotel loans will come due,” he said, wondering when credit markets will start to thaw. “Hotels financed in 2005-2006 were financed and opened in 2009, but we’re seeing hotels close, even those run by people who know how to run hotels. Any project that wasn’t started before the fall of 2008 is not moving forward. So there will be less supply by 2011,” Tisch said, which will improve the demand for room nights.
The numbers bear that out. According to Lodging Econometrics, Portsmouth, N.H., just 717 hotels, representing 82,620 rooms, will open in 2010—a 56 percent drop from 2009. In 2008, 1,345 new hotels opened, representing 154,667 rooms. The expected decline for 2010 stems from a near-disappearance of lending, with the flow of loans from local community banks at a trickle during the second half of 2009, according to LE.
The company also notes that project cancellations and postponements remain at historic highs, and project announcements have fallen to five-year lows. More closures may also occur in 2010, according to experts. In California alone, 62 hotels went into foreclosure in 2009, with 53 percent of those filing for bankruptcy. Further, 307 hotels in the state were in default, a 497 percent increase over 2008, according to Atlas Hospitality Group in Irvine, Calif.
“All of this is good news for the industry,” states LE in its construction pipeline report. “Acute declines in LE’s Forecast for New Hotel Open¬ings means that the future absorption of new supply will be far less of a head wind than previously thought as the industry awaits economic recovery.”
The hotel market is expected to improve slowly this year. In its forecast for 2010, STR is projecting a 3 percent decline in both ADR and RevPAR at year’s end. Occupancy is expected to be flat at 55 percent. After a challenging first half of the year, the industry will build momentum in the second half, leading to a turnaround in 2011, predicts Lomanno of STR.
However, speaking at PCMA, Isaac Collazo, vice president, performance strategy and planning, The Americas, InterContinental Hotels Group, said a full recovery is still several years off. He predicted that occupancy rates would grow in 2010 but that room rates would drop. He doesn’t expect a full recovery in occupancy and rates until 2013.