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 NYU's Hanson Sees Strongest Buyer's Market In 33 Years Ahead
DECEMBER 11, 2008 --
The lodging industry is experiencing the strongest buyer's market in 33 years with no recovery on the horizon across demand segments, industry analyst Bjorn Hanson said today in the keynote address at Business Travel News' Virtual Corporate Travel World.
Hanson, an associate professor at New York University's Tisch Center, said that amid the recession, corporate negotiated rates for 2009 now are expected to increase on average in the 0.5 percent to 1 percent range, well below the inflation level. Even in New York, which had been seeing double-digit percentage year-over-year rate increases in past years, rates should increase only about 5 percent, Hanson said. Hotels also are negotiating amenities—free breakfast and fitness center usage, for example—as a package deal more so than in the past, according to Hanson.
"The shift in the balance of power from seller to buyer happened as dramatically as at any time in history," Hanson said.
Domestic corporate lodging demand is down by 3 percent to 4 percent, and international corporate lodging demand is down even more sharply, due to the global nature of the recession as well as the strengthening of the U.S. dollar since the beginning of this year, Hanson said. Leisure demand, both international and domestic, also is down, and group demand is expected to drop once the current crop of meetings, many of which were planned months or even years ago, are completed.
At the same time, as demand drops, supply is expected to increase in the 2.5 percent to 2.7 percent range this year and in the 1.6 percent to 1.7 percent range next year, he said. This will cause revenue per available room to drop about 6.3 percent, occupancy to dip below 60 percent to its lowest level since 1971 and for average daily rates to decrease an unprecedented 2.4 percent to 2.5 percent in 2009, according to Hanson.
Still, Hanson said not to expect too much turmoil within the industry during the downturn. Hoteliers implemented strategies during the previous downturn that allows them to break even with occupancy as low as 54 percent, so while hotels will take a hit in profitability, they still will largely maintain service levels and solvency.
"We're ready to bear our way through this difficult economic time better than ever before," Hanson said. "Properties will be well-maintained, and we won't have foreclosures and changes of ownership the way we did in the last cycle."
Hanson's remarks highlighted the first session of a four-session educational program of Webcasts that complement BTN's first virtual exhibit hall and networking lounge.
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