- July 2009: Vol. 21 No. 7

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How Hotels Check Out: Profits and Cap Rates Adjust During Times of Recession

by R. Mark Woodworth

The recessionary environment that persists in all four corners of the United States through the first quarter of 2009 has set the stage for what will be a record year of contraction for the domestic lodging industry. According to Smith Travel Research (STR), the average U.S. hotel achieved an occupancy level of 51.4 percent through first quarter 2009, a 10.9 percent decline compared with the 2008 level of 57.7 percent. The ill effects of these weak demand conditions are being amplified by the scale of new hotel openings, which represented a 3.2 percent net increase in available supply in the first quarter. Inventory levels will likely grow by 2.6 percent for full year 2009, well above the 20-year average of 1.9 percent as reported by STR.

The forecasts released by PKF Hospitality Research (PKF-HR) in March of 2009 reveal that this disconnect between the property cycle (above-average supply growth) and the business cycle (demand is contracting) will likely result in a 13.7 per

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