Hotels Bask In Bull Market

The U.S lodging market is on a tear, thanks in large part to higher demand from business travelers. Ernst & Young’s most recent National Lodging Report sees strong revenue per available room (RevPAR) performance at urban and airport hotel locations. Midweek RevPAR has also strengthened over the past 12 months, which clearly shows that business travel is on the rise.

The study projects that average daily room rates (ADRs) should increase 4% this year. Such an increase would allow ADRs to hit $90 by the end of 2005. This combined with a 1.7% rise in occupancy to 63% would bring total RevPAR up by 6.9% to $57. That’s a significant level since it would surpass the previous RevPAR peak achieved in 2000 of $55, too.

“Improved hotel operating performance over the last year has stimulated positive investor sentiment and increased capital market activity in lodging, where annual returns are expected to be better than for other real estate types,” reads an excerpt from the report.

So what about the risks? Ernst & Young cautions that speculative building for tourist hotels is “more risky than ever.” One specific concern: developers building new tourist hotels in areas that cannot sustain enough tourist or convention business.

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