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Recovery Full Speed Aheada presentation to:
U.S. + Inland Empire Lodging Industry Update
Brandon FeighnerPKF Consulting USA
September 18, 2013
Inland Empire Tourism Council
DiscoverIE Tourism Summit
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Agenda
The Recovery & What Could Derail It?Our Current Forecasts.
Regional Trends & Opportunities Inthe IEs Five Regions.
2
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3
Has the U.S. Lodging Industry
Recovered?
Smith Travel Research:
Lodging Demand Was at an
All Time Record in 2012
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What Could Derail the Recovery?
4
1. The Economy
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GDP Component Forecast
5
These matter
the most.
-2.7%
2.0%
-2.0%-8.3%
-5.4% -0.4%1.3%3.9%
1.6%
3.9%
2.8%2.8% -1.3%3.2% 1.4%4.9%
3.7%
1.2%2.8% 0.1%1.1%1.7% 2.3%2.8%3.4%4.0% 4.1%4.3%
-10
-8
-6
-4
-2
0
2
4
6
8
10
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV
2008 2009 2010 2011 2012 2013 2014
Contributions to percentage change in gross domestic product
(GOVERNMENT) Government consumption expendituresand gross investment
TRADE (Net exports of goods and services)
BUSINESS (Gross private domestic investment)
CONSUMERS (Personal consumption expenditures)
Demand Change
Forecast
Source: BEA, Moodys Analytics, PKF-HR, STR
July 2013
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What Could Derail the Recovery?
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1. The Economy Not Likely Any Time Soon2. Over Building
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Limited New Supply is a Big
Part of the Story
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What Could Derail the Recovery?
8
1. The Economy Not Likely Any Time Soon2. Over Building Not Likely Any Time Soon
3. Unpredictable Demand Shock
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Two Big Demand Shocks
in Recent Memory
-20%
-15%
-10%
-5%
0%
5%
10%
15%
U.S. Hotel Demand
Source: PKF-HR, STR 9
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What Could Derail the Recovery?
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1. The Economy Not Likely Any Time Soon2. Over Building Not Likely Any Time Soon
3. Unpredictable Demand Shock
Many Reasons Why WeDo Not Want This to Happen
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Where Are The Summer Headwinds?
Summer 2013:
Home Prices are Up
Credit Becoming More Available Interest Rates Going Up
J ob Growth to Continue
GDP Growth Accelerating into 2015
A Final Thought
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Hotel HorizonsAugust 2013
12
2012 2013August
2012
STR
Actual
August
2012Most Recent
Update
Occupancy 60.7% 61.4% 61.9% 62.3%ADR 4.7% 4.2% 5.3% 4.2%
RevPAR 6.7% 6.8% 7.3% 5.9%
Stronger than Expected
Demand Growth
United States
ADR Recovery Slower than
Expected
Source: PKF Hospitality Research, LLC Hotel Horizons September-November 2012, 2013, Smith Travel Research
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Historic and Projected International
Visitors to the U.S.
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Arrivalsin
Millions
Forecast
Source: International Trade Administration
In-Bound International Visitation at RecordLevels
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Good News Summary
1. Supply Growth: Below Average through 2016.2. Demand Growth: Above Average through 2015.3. Occupancy: Above Average Level through 2016.4. ADR Growth: 2 xs Average through 2015.5. RevPAR Growth: 2.5 xs Average through 2015.
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2013 RevPAR Forecast
By Chain-Scale
Chain-Scale 2012 2013F 2014F
Luxury (Ritz-Carlton, Four Seasons) 7.8% 7.4% 7.5%
Upper-Upscale (Marriott, Hilton) 6.6% 6.2% 6.2%
Upscale (Courtyard, Hyatt Place) 6.7% 5.8% 6.8%
Upper-Midscale (Hampton, H.I.) 6.6% 4.4% 5.5%
Midscale (Best Western, LaQuinta) 6.0% 4.4% 5.6%Economy (Days Inn, Red Roof) 5.7% 4.9% 7.6%
All Hotels 6.8% 5.9% 7.2%
Source: PKF Hospitality Research, September-November 2013 Hotel Horizons report.
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Long
TermAverage 2008 2009 2010 2011 2012 2013F 2014F
Supply 2.0% 2.4% 2.8% 1.7% 0.5% 0.5% 0.8% 1.1%
Demand 2.1%2.5%
6.2% 7.2% 4.7% 3.0% 2.4% 3.1%
Occupancy 61.9% 59.8% 54.5% 57.5% 59.9% 61.4% 62.3% 63.5%
ADR 2.9% 3.0%8.7% 0.0% 3.8% 4.2% 4.2% 5.2%
RevPAR 2.9% 2.0% 16.7% 5.4% 8.2% 6.8% 5.9% 7.2%
National Forecast 2013/2014
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Passing Through Long
Run Average Level
Very Limited New
Supply
Source: PKF Hospitality Research, LLC Hotel Horizons September-November 2012, 2013,Smith Travel Research
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Occupancy Level Back to AverageRoom Rate Growth Stalls
17Source: Smith Travel Research
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
45.0%
50.0%
55.0%
60.0%
65.0%
1988
1988
1989
1989
1990
1990
1991
1991
1992
1992
1993
1993
1994
1994
1995
1995
1996
1996
1997
1997
1998
1998
1999
1999
2000
2000
2001
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011
2011
2012
2012
Occupancy (4Q MovingAverage)
Average Daily Rate Change
Current Occupancy
Level
Current ADR
Change Rate
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Why Have Room Rates Been
Slow to Recover?
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While Total Lodging Demand is at Record
Levels, the Group Meeting Customer Has Yet to
Fully Return.
Why?
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Uncertainty! It Remains Elevated
Source: Scott R. Baker, Nicholas Bloom, and Steven J . Davis
Since 2008, economic policy
uncertainty has averaged about
twice the level of the previous 23years.
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Inland Empire v. National
Lodging Market (2006-12)
$0
$10
$20
$30
$40
$50
$60
$70
2006 2007 2008 2009 2010 2011 2012
United States
Inland Empire
RevPAR
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Southern California Hotels
Historical Annual Performance
Area YE 2012 2013 Est. YoY Change
Orange County 73.0% 74.4% 1.9%
Los Angeles County 75.4% 76.2% 1.1%
Inland Empire 58.3% 60.5% 3.8%
San Diego County 70.6% 70.9% 0.5%
Area YE 2012 2013 Est. YoY Change
Orange County $120.30 $127.78 6.2%
Los Angeles County $130.26 $137.02 5.2%
Inland Empire $91.79 $94.08 2.5%
San Diego County $131.76 $133.55 1.4%
Source: PKF Consulting HR Hotel Horizons, and PKF Consulting Los Angeles Trends in the Hotel Industry
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Southern California Hotels
Forecasted Performance
Area 2013 Est. 2014 Forecast YoY Change
Orange County 74.4% 75.0% 0.7%Los Angeles County 76.2% 76.8% 0.8%
Inland Empire 60.5% 62.9% 4.0%
San Diego County 70.9% 71.2% 0.4%
Area 2013 Est. 2014 Forecast YoY Change
Orange County $127.78 $135.79 6.3%
Los Angeles County $137.02 $146.24 6.7%
Inland Empire $94.08 $97.38 3.5%
San Diego County $133.55 $138.06 3.4%
Source: PKF Consulting HR Hotel Horizons, and PKF Consulting Los Angeles Trends in the Hotel Industry
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Inland Empire Outlook
Opportunities
Things will only get betterDeclining vacancy in Industrial/Office50,000+ jobs created 2012-13
New Riverside CC and Ontario CCManagement
Challenges
Older hotel productAir access/Local airport controlMarketing a large and diverse local
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Summary
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3. Industry growth, while limited regionallyshould accelerate in the IE in coming years.
2. The fundamentals are solid nationally andimproving regionally.
1. No threats from the factors that historicallyhave brought an end to the good times.
4. Above average room rate increases should beachieved as demand strengthens or peaksacross the region.
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Thank You
www.pkfc.com
VicePresident
PKFConsultingUSA,LosAngeles
(213)861 3312
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