Recovery of hotel industry unlikely before 2011, Fitch says

NEW YORK: A recovery of the US hotel industry isn’t likely until 2011 because room rates remain low and commercial real estate values have plunged, Fitch Ratings said.

“Although the most significant cyclical demand declines related to the recession likely have passed, operating trends are expected to remain weak well into 2010,” Fitch said in a report today. Its outlook for the industry remains negative.

Companies such as InterContinental Hotels Group Plc, the U.K.-based owner of the Holiday Inn brand, and Marriott International Inc, the largest US hotel chain, have lowered room prices to attract cash-strapped travelers, cutting into their profits. Average US daily rates from January through October dropped 9% from a year earlier to $98.14 (RM352.32), while occupancy fell to 57%from 63%, according to Smith Travel Research.

“Next year will continue to be challenging for the lodging industry,” Michael Paladino, senior director at Fitch, said in the note. “A pricing recovery for the sector will be difficult over the next 12 months, which will constrain a rebound in lodging profits.”

Revenue per available room, a measure of rates and occupancy known as revpar, may drop 3 to 5% next year, followed by low single-digit growth in 2011, Fitch said.

Hotel property values may plummet as much as 50% from their peak, according to Fitch CMBS Managing Director Eric Rothfeld.

The ratings company expects an increase in distressed asset sales over the next 12 months to 18 months, with the largest concentration of commercial mortgage-backed securities hotel loan maturities coming in 2011 and 2012.

The industry slump “has limited the ability of owners of hotel assets to optimize portfolios and improve credit profiles through asset sales,” Fitch said. -- Bloomberg

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