Worst over for room rate decline at US hotels: Study

The US hotel industry is likely over the worst declines in room rates, but average prices will continue to slide in 2010 as the sector struggles to regain its footing, PricewaterhouseCoopers said on Friday.

Average daily rates are expected to drop 8.8% in 2009, the worst drop this decade, the firm said in its latest lodging forecast. Rates may slump another 1.8% in 2010.

"I think the worst is over," said Scott D. Berman, partner at the firm's Hospitality and Leisure Practice. "That's barring any unforeseen circumstances."

Many hotels sharply cut their rates this year to stem the slide in occupancy. Corporate cost-cutting has sapped demand from business travelers, a key source of revenue for hotels, while high unemployment continues to hamstring vacationers.

Major hotel operators Marriott International Inc and Starwood Hotels & Resorts Worldwide Inc have forecast revenue per available room, or RevPAR, to be flat or down as much as five% in 2010, compared with this year.

PricewaterhouseCoopers has forecast that RevPAR, a key gauge of financial health for hotels, will sink 16.4% in 2009 and slip 0.7% in 2010.

"We'll see a turn here, but it's a fact that the industry is basically forecasting negative RevPAR," Berman said in an interview. "It's not signaling any reason to celebrate."

PricewaterhouseCoopers expects to see 55.2% occupancy in 2009, down from 60.3% in 2008.

One key headwind for hotels is the growth in the number of hotel rooms as new properties open. PricewaterhouseCoopers expects supply to grow 3.2% this year and another 1.4% in 2010.

"When you look at hotels this year, these were deals that were consummated in '06, '07," Berman said. "You've added a couple% to supply on relatively flat demand."

But Berman added that supply growth is expected to taper off in years to come, which will help the industry rebound strongly when the demand recovers.