PricewaterhouseCoopers' Lodging Industry Forecast Anticipates Robust Growth in 2011

Although the pace of demand growth is expected to moderate during the second half of 2010, the recovery is expected to shift from almost exclusively demand-driven to a mix of demand and room rate growth, confirming the return of the business segment. In the first half of 2009, weekday transient demand at higher-priced hotels - a proxy for business travel demand - had fallen 10.6 percent below 2007 levels, when the industry was the strongest. By the first half of 2010, stronger business travel closed more than half of this gap, to just 3.7 percent below 2007 performance.

With growing demand and decelerating supply growth, PricewaterhouseCoopers anticipates that the US occupancy rate will increase 2.6 percentage points for 2010, reaching 57.2 percent. The pricing outlook for the remainder of 2010, and 2011, has improved substantially, resulting in an earlier-than-expected recovery in average daily rate ("ADR") during the second half of 2010. This synergistic effect is expected to result in a 4.1 percent increase in revenue per available room (RevPAR) in 2010.

PricewaterhouseCoopers' quarterly lodging forecast is based on an updated macroeconomic forecast from Macroeconomic Advisers, LLC that reflects a deceleration in the growth of the US economy during the remainder of 2010, but an outlook for a return to an above-trend growth in 2011. Despite lower macroeconomic growth forecast for the remainder of 2010, stabilized conditions among businesses and consumers provide the context for continued lodging demand growth in 2010, albeit at a slower pace than the first half of the year. Macroeconomic Advisers expects real gross domestic product ("GDP") to increase 3.0 percent in 2010, followed by a 3.5 percent increase in 2011.

The current slowdown in hotel construction activity is a key element in the foundation for recovery in operating performance of existing hotels. The pace of new construction starts fell from 133,000 rooms in 2008, to 47,000 in 2009, and most recently to approximately 32,000 rooms (annualized) in the second quarter of 2010. This sets the context for progressively slower supply growth of 2.0 percent in 2010, and just 0.4 percent in 2011. The recovery of business travel is expected to continue as recent corporate earnings reports suggest a more confident segment willing to travel. As a result, ADR decline is expected to moderate to just 0.6 percent this year, followed by robust room rate growth of 4.1 percent in 2011.

PricewaterhouseCoopers U.S. Lodging Forecast - 2010 and 2011
	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011
Occupancy	63.2%	59.7%	59.0%	59.2%	61.3%	63.0%	63.2%	62.8%	59.9%	54.7%	57.2%	58.6%
ADR Growth	5.3%	-1.4%	-1.5%	0.1%	4.2%	5.6%	7.6%	6.4%	2.8%	-8.7%	-0.6%	4.1%
RevPAR Growth	6.1%	-6.9%	-2.6%	0.5%	7.8%	8.6%	7.8%	5.9%	-2.0%	-16.7%	4.1%	6.7%
Sources: Smith Travel Research and PricewaterhouseCoopers LLP

"Based on current macroeconomic conditions and the lodging industry's performance during the first half of the year, PricewaterhouseCoopers continues to believe the industry will continue to experience a modest recovery for the balance of this year into 2011," said Scott D. Berman, principal and U.S. industry leader, Hospitality & Leisure, PricewaterhouseCoopers.

A full copy of PricewaterhouseCoopers' US Lodging Forecast can be accessed by visiting: http://www.pwc.com/us/en/asset-management/hospitality-leisure/publications/index.jhtml

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SOURCE PricewaterhouseCoopers

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