Room Rates Are Coming Back: STR

NEW YORK— Room rates, which have been an area of particular concern to the lodging industry since 9/11, are showing signs of recovery, said Randy Smith of Smith Travel Research, who spoke at the NYU Investment Conference general session June 3. Post 9/11 room rates in many markets and segments were slashed to lure nervous travelers back, and are now slowly but surely coming back, he said. Smith noted that the average room rates as of May 2002 is approximately $83.20. However, he said that while room rates have been improving through May, the upper-upscale segment continues to lag behind. “Rates [for upper-upscale]were still down 5.5% by the end of May.” Smith also indicated that demand is on the rise, while supply— thankfully— is slowing. “Supply is generally trending downwards. It was disturbing to see it moving back up a little in January, February and March; but generally supply has slowed.” Smith said he expected supply to drift down this year, bottoming out at about a 1.4% drop, for an average drop of 1.6%. In 2003, he said he expected a 1.7% drop for an average of 1.6%. Meanwhile, demand is bouncing back, he said. “All of the impact of 9/11 should have worked its way through the industry by now, and we should be getting back to normal,” he said. All told, Smith noted that the industry was in a better financial state to weather the effects of 9/11 and the economic downturn than it was in the early 1990s. In 2001, Smith said the hotel industry did about $16.7 billion in profits; in 2002, he said he expects profits to come in around the same number. “Im optimistic that the industry is still profitable,” Smith said.