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Lodging rates expected to rise steadily for several years

According to a new report from consultants at PKF Hospitality Research, business travelers can look forward to shelling out more for their hotel rooms in the new year—and even more the year after that, and the year after that, and the year after that.

Overall, PKF forecasts that average daily rates at U.S. hotels will increase by 5.4 percent per year, on a compound basis, from 2013 through 2016.

Currently, “The U.S. lodging industry continues the extremely healthy upward trend it began in 2Q10, with ongoing gains in all the major business measurements,” PKF said. “Looking forward, the company is forecasting a perpetuation of this growth through 2016...RevPAR (revenue per available room) for U.S. hotels is projected to grow at a compound annual average rate of 7.2 percent for the next four years. This is more than double the historical long-run average.”

And those increasing revenues won’t come from attracting more guests and filling more rooms. Instead, PKF said, 85 percent of the revenue growth will come from customers paying higher daily room rates.

Those higher rates will be coming mainly at the kinds of hotels frequented by business travelers. “Much of the gains in average daily rate will be experienced by properties in the luxury, upper-upscale and upscale chain segments,” the company predicted. “Occupancy levels for these properties are projected to remain above 70 percent through 2016.”

The company said it expects average daily rates to increase in all 50 major metropolitan areas. For 2013, PKF expects a 5 percent increase in average rates—slightly below its longer-term forecast. But the 2013 price hikes won’t be uniform. For instance, PKF said it expects daily rates to increase next year by 8.8 percent in San Francisco, 6.8 percent in Portland, 7.2 percent in Oakland, 5.6 percent in St. Louis, 5.3 percent in Los Angeles and just 2.6 percent in Indianapolis.

If there’s one cloud on the horizon for 2013, PKF said, it is the unresolved political situation in Washington, and uncertainty about taxes and government spending going forward. “Without falling off the fiscal cliff, we believe revenue per available room in 2013 will increase by 6 percent,” said PKF Hospitality Research president R. Mark Woodworth. “However, if budget negotiations fail, it can be assumed that RevPAR growth will be well below that...There is so much uncertainty surrounding 2013 that almost no one overtly is showing the optimism that should exist.”

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