Fitch: Lodging Fundamentals On-Track, But Upside Less Likely

NEW YORK--()--Year-to-date revenue per available room (RevPAR) growth of 5.8% based on metrics reported by STR Global support Fitch Ratings' outlook for 5.5 % growth in RevPAR this year. However, there is anecdotal evidence that the acceleration in group bookings pace that began in 2H13 has slowed, making upside to our RevPAR forecast less likely.

Comments made by lodging C-Corps during the Americas Lodging Investment Summit (ALIS) in late January combined with a recent third-party industry reports suggest softening in the group bookings pace and, by extension, demand. We believe the group demand segment (defined as rooms demand booked in blocks of 10 or more rooms) has lagged so far during this recovery due to cyclical and secular challenges, such as structurally high unemployment (cyclical) and booking outside the block (secular). Hotel managers often rely on a solid base of advance group bookings for the confidence to aggressively increase room rates for the remaining unsold room nights. The implication from softer group trends is that average daily rate gains may be less robust during the year.

Still, it is possible for group pace to slow even as group demand remains strong. A lengthening in the bookings window could explain the deceleration in group pace. In other words, companies may be booking meetings and events further in advance, which could reduce the comparable pace of bookings made in the year, for the year. However, overall group demand may be stable to improving with the benefits to accrue beyond 2014.

The benign supply environment for U.S. lodging has not changed, and it continues to support our Positive Sector Outlook. Although development financing has become more available and supply growth is accelerating, relatively long lead times for full-service hotel development should keep supply growth below its historical 1.9% average during the next 1-3 years.

Fourth quarter 2012 lodging industry earnings season begins in earnest this week and will lend clarity to actual RevPAR growth.

For more information on this topic, please see our "2014 Outlook: Cross-Sector Lodging and Timeshare" report published on Dec. 13, 2013.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Contacts

Fitch Ratings
Stephen N. Boyd, CFA, +1-212 908-9153
Director - U.S. REITs
FitchRatings
One State Plaza
New York, NY 10004
or
Kellie Geressy-Nilsen, +1-212-908-9123
Senior Director
Fitch Wire
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Stephen N. Boyd, CFA, +1-212 908-9153
Director - U.S. REITs
FitchRatings
One State Plaza
New York, NY 10004
or
Kellie Geressy-Nilsen, +1-212-908-9123
Senior Director
Fitch Wire
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com