The on-again, off-again lodging industry is set to recover in 2002, thanks to a likely uptick in recently-slashed corporate travel.

While most other commercial sectors foundered last year, lodging companies managed to turn in record financial results and impressive stock prices increases. In fact, hotel stocks far outpaced all other real estate equity categories in late 2000 and early 2001.

Yet 2001 has turned into a nightmare for many hotel firms, businesses suffering from a slowing global economy that has forced most corporations to significantly cut travel expenses. For 2001, revenue per available room (RevPAR) -- the standard measure of financial performance for hotels -- will be negative for only the second time in 32 years.

PricewaterhouseCoopers (PwC) predicts that RevPAR for 2001 will drop 0.3 percent from 2000 levels. This points to horrific performance in the spring and summer, since Smith Travel Research reported an increase in RevPAR of 3.4 percent in the first quarter.

The second quarter turned in a sharp decline, while the third quarter saw RevPAR drop an estimated 2.1 percent. Growth of 0.3 percent predicted for the fourth quarter won't be enough to salvage the year's results, PwC predicts.

While business travel has been weak, leisure travel remains quite healthy. But this could change as the stock market continues its volatile march and more workers lose their jobs.

Yet lodging property owners should take heart. The industry looks to be making a quick recovery, with improved results in the fourth quarter leading to an estimated 2.6 percent growth rate in RevPAR for 2002, according to PwC estimates.

Perhaps the best example of the predicted turnaround is forecast for New York City. Like other major markets, new hotel openings in the Big Apple have contributed to an already-declining occupancy rate this year. Supply increased by 3.5 percent, while the city hosted 500,000 fewer guests in the first half of 2001.

New York City hotel occupancy is expected to run about 76.5 percent for this year, rising to 80 percent in 2002. This is still lower than Manhattan's record of 83.9 percent, which it turned in last year.

But room rates are rising, and should reach record levels in 2002. This means a return to profitability and financial health for the city's hotels.

"Occupancy and room rates in 2001 are exceeding long-term averages for New York City, and they are still the envy of the nation," said Sean Hennessey, director of PwC's Hospitality & Leisure Practice. "Most Manhattan hotels have not compromised their price integrity. This will make it easier for the hotels to enhance revenues next year as market conditions improve.

"However, room rate growth will be much slower than in recent years because of the price sensitivity of leisure travelers, and the restricted travel patterns of the traditional corporate travelers," Hennessey added.

Of the top 25 metro areas tracked by Smith Travel Research through the first five months of 2001, New York City ranks first in room rates and RevPAR. Yet the nation's hoteliers hope to join in the trend -- a likely scenario since rack rates across the nation have not dipped in response to the current downturn.

For more articles by Lesley Hensell, please press here.

Published: August 30, 2001

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Lesley Hensell covers commercial real estate and financial issues for Realty Times. Based outside of Dallas, Lesley works with high-tech and real estate clients as an independent marketing and public relations consultant. She also writes for several publications, including the Dallas Morning News. E-mail Lesley at: lhensell@earthlink.net