Recent performance of the lodging industry has surprised industry participants, as solid ADR growth has struggled despite peak occupancy levels, which was expected to have given operators the confidence to drive targeted price increases in many markets. As a result of continued pricing challenges, the outlook for 2015 is reduced moderately, to a RevPAR increase of 6.5 percent, driven by lower-than-previously-expected ADR growth. In 2016, PwC expects RevPAR to grow 5.7 percent, driven by ADR.
The estimates from PwC are based on a quarterly econometric analysis of the lodging sector, using an updated forecast released by Macroeconomic Advisers, LLC in October, and historical statistics supplied by STR and other data providers. Macroeconomic Advisers expects real gross domestic product ("GDP") to increase 2.2 percent in 2015, followed by a 2.5 percent increase in 2016, measured on a fourth-quarter-over-fourth-quarter basis.
Based on this analysis and recent demand trends, which continue to be strong, industry occupancy in 2015 is expected to reach levels not seen since 1981, driven by a combination of strong demand momentum and a still-controlled supply environment. Despite peak occupancy levels, recent trends have pointed to continued pricing challenges as more significant ADR growth continues to defy expectations, even though many hotels in many markets are increasingly experiencing sell-out conditions. In 2016, supply growth is expected to accelerate to 1.9 percent, with the increase in available hotel rooms reaching the long-term average. As a result, while occupancy levels are expected to begin to stabilize, these peak levels, coupled with increased confidence amongst hotel operators and brands, are expected to support an average daily rate-driven RevPAR increase of 5.7 percent in 2016.
Average daily rate growth continues to lag expectations despite peak occupancy levels, says PwC US
Download: PwC Hospitality Directions: November 2015
"We are currently in that part of the cycle where many would have expected ADR growth to be more impactful" said Scott D. Berman, principal and U.S. industry leader, hospitality & leisure, PwC. "However, with continued strong lodging demand trends in the US, peak occupancy levels, coupled with the absence of this year's drag on the US Dollar, should give hotel operators confidence to continue to drive more room rate growth in 2016".
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