Bad news, bargain-hounds: “The worst appears to be over” for lodging industry

ruinIt’s good news for them, bad news for us. Sorta.

The long drop in hotel rates appears to be nearing the bottom, according to PricewaterhouseCoopers. Its lodging analysts believe the economic recovery will lift demand for hotel rooms in 2010.

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But hotel rates? That’s another story. Average daily rates in 2010 are expected to remain below 2009 levels, even with the projected bounce. (Can you say Year of the Deal?)

People remain reluctant to travel this year. According to PricewaterhouseCoopers’ current forecast, lodging demand in the fourth quarter of 2009 is forecast to be 0.5 percent below last year’s levels, resulting in an annual decline of 5.5 percent in 2009.

Because of a growth in lodging supply — in other words, new hotels coming online — the rate increases won’t take hold immediately. Occupancy levels will drop by 8.4 percent in 2009, resulting in an average annual occupancy level of 55.2 percent. Room rates are expected to continue to be compressed, resulting in an 8.8 percent decline in average daily rates and a 16.4 percent decrease in revenue per available room in 2009.

All of which brings us to next year.

In 2010, PricewaterhouseCoopers forecasts that a supply growth of 1.4 percent, combined with growing demand, will result in a “subtle recovery” of hotel occupancy to 55.8 percent, which is seven percentage points below the long-term average of 62.8 percent.

Meanwhile, signs of recovery in hotel pricing are not yet evident. It is expected that the steepest declines in average daily rates have passed, but that year-over-year rate levels will continue to decline, resulting in a 1.8 percent decline.

Hotel analyst Scott Berman put the forecast into perspective:

Barring any unforeseen circumstances from an operating perspective, the worst appears to be over. To what degree the industry experiences recovery is predicated on an improving economy, which facilitates lodging demand growth, and operators’ ability to achieve higher pricing.

I would call this a good news/good news forecast. Rates will continue to fall next year, offering bargains aplenty. And hotels will probably have a better 2010, even with the rate decreases.

Not ideal, but it’s as close to a win-win as you could hope for.

(Photo: CasaDeQueso/Flickr Creative Commons)

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