Hotel demand seen rising 3 percent

By Jeannine DeFoe
Bloomberg News

NEW YORK — U.S. demand for hotel rooms will rise 3 percent this year, after the worst drop in three decades last year — helped by the economy and lack of new hotels being built, PricewaterhouseCoopers said in a report.

Hotel occupancy will rise 1.2 percent, to 61.3 percent, and the average daily rate will rise 1 percent, resulting in an increase in revenue per available room to $52.53 from $51 last year, the firm said.

The supply of new hotels will grow 1.5 percent, the slowest pace in eight years, the firm said, helping existing hotels win a greater share of travelers than in the past.

The report represents a reversal from the firm's December forecast, which said revenue per room would fall 0.2 percent on declines in both room rates and occupancy.

U.S. gross domestic product, which accounts for about 75 percent of lodging demand, grew at a 1.4 percent annual pace in the fourth quarter, better than the 0.2 percent pace first estimated by the Commerce Department.

"The economy is recovering quickly. Companies have more money available to plan meetings, outings, client trips, etc. as the economy improves," said Sean Hennessey, director of hospitality practice for PricewaterhouseCoopers. "As consumer confidence improves, that is the bellwether for leisure travel."

Marriott International Inc., FelCor Lodging Trust Inc. and other hotel companies have said travelers are returning, which allows them to raise room rates. Investors have bought hotel stocks in anticipation of improving revenue per room, sending the Standard & Poor's 500 Hotels Index up 43 percent since late September.

Economic growth will increase demand for hotel rooms from businesses, which has lagged behind demand from tourists this year, PricewaterhouseCoopers said.

Demand is still below 2000 levels, when revenue per room rose 6 percent. The 2002 occupancy forecast is lower than in all but 14 of the last 75 years. Revenue per room won't reach 2000 levels until next year, the firm said.

Last year, revenue per room fell 6.8 percent, the worst drop in 34 years, because of the Sept. 11 attacks and a recession in the United States that started in March. Revenue per room will rise to $55.12 in 2003 and $57.78 in 2004, the firm said.

The forecasts do not account for future terrorist attacks, increased U.S. military action or a substantial increase in oil prices, the firm said.