Maria Wood is senior editor of Real Estate Forum
LOS ANGELES-Prepare for an surge in lodging supply. That was the opinion of several experts speaking at the opening of the Americas Lodging Investment Summit, which kicked off here yesterday.
In "Performance and Economic Outlook: Surf's Up!," the speakers ventured that a swell of new supply may dampen the industry's good times. Randell A. Smith, CEO of Smith Travel Research, a leading industry research firm, said that "new supply is coming on fairly rapidly, while demand growth is drifting downward." He pointed out that demand increased by 1.1% last year, versus 4.2% in 2005. Last year, the amount of new hotel rooms grew by 0.6%, with "a lot more rooms coming on line" this year.
As a result, Smith expects occupancy to decrease slightly in 2007, dropping from 63.3% in '06 to 62.9% in '07. Despite a loss in occupancy, hotels will see average daily rates grow by 6.4% in 2007, down from a 7% hike in 2006, he said. Revenue per available room would also increase in 2007 by 5.8%, although that would be below the level of 2006 when the number was 7.4%.
Bjorn Hanson, principal and hospitality industry leader for PricewaterhouseCoopers LLP, said that demand and supply will grow at the same rate in 2007--1.6%. He said 118,796 new rooms came on line in 2006, with 124,677 slated to be delivered this year. He also predicted that occupancy would decline slightly in 2007, but that ADRs and RevPAR would increase, but not at the same pace as seen in 2006.
And during a "Hot Seat" session, Barry S. Sternlicht, chairman and CEO of Starwood Capital Group and former head of Starwood Hotels & Resorts Worldwide Inc., said that he was "troubled" by the year-over-year declines in occupancy. "It does not bode well for the pricing power of the major hotel companies," he said.
But when asked if the industry was heading for a major downfall, Hanson said that with so much data on new supply, the lending community would keep a lid on overbuilding. "We are not heading toward a trough," he said.
This is the sixth year for the conference. James E. Burba, chairman of ALIS and an advisor with Horwath Hospitality & Leisure LLC, said that 2,400 attendees had traveled to the summit, making it the largest investment conference in history.
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