1995 was a very good year for U.S. hotels.

PKF Consulting, the international hospitality appraisal and consulting firm, announced that the average occupancy for its nationwide sample of hotels climbed over 70 percent for the first time since 1979. According to Patrick Quek, the firm's President and Chief Executive Officer, the average occupancy for U.S. hotels in 1995 was 70.6 percent, a 1.4 percentage point increase over the 69.2 percent occupancy level achieved in 1994.

"By surpassing the 70 percent mark, we can officially declare that industry recovery has been accomplished," says Quek. Since 1991, the U.S. hotel industry has been straggling to recuperate from overdevelopment in the 1980s and a downturn in travel during the early 1990s. "Since 1990, the supply of lodging accommodations has remained virtually flat while the demand for rooms has steadily increased. The result has been four consecutive years of improving occupancies," says Quek.

PKF Consulting predicts that this trend will continue into 1996, when by year-end, occupancies should gain one more percentage point and reach 71.6 percent.

Historically, the level of travel in the United States is closely tied to the health of the overall economy. In 1995, the U.S. economy grew and estimated 3.1 percent, while the demand for hotel rooms grew 3.3 percent.

Pockets of Overdevelopment

On a national basis, all regions of the nation enjoyed increases in occupancy. However, a closer look at the numbers reveals that in some specific markets where new hotel construction activity has taken place, occupancy levels have declined. Cities like San Antonio, Albuquerque, and Salt Lake City saw several new hotels open up in 1995, especially in the economy, limited-service segment.

"In general, the Texas and mountain states were the first markets to show economic recovery, and thus attracted the attention of hotel developers," say Robert Mandelbaum, Director of Research for PKF Consulting. "This creates a situation where the number of new hotel rooms is growing faster than the demand for the new accommodations, thus occupancies decline."

Careful Pricing Warranted

The other important indicator of health for the hotel industry is the average room rate guests are charged. The average room rate for PKF Consulting's survey sample grew 4.5 percent, from $82.21 in 1994 to $85.92 in 1995. This represents the second consecutive year that hotel operators have been able increase room rates greater than the rate of inflation.

However, given the general depression in consumer confidence spurred by news of corporate layoffs and inflated personal debt, hotel operators need to be sensitive to the public's desire not to overspend travel dollars, a very discretionary expenditure. "It is important for the lodging industry to understand that the current balance of supply and demand in the industry's favor should not be overly exploited when setting room rates," says Mandelbaum. "Pricing based on quality is what consumers will respect and pay for from now on."

(PKF Consulting is an international appraisal and consulting firm specializing in the hospitality industry. The firm is headquartered in San Francisco, with offices in New York, Boston, Philadelphia, Atlanta, Miami, Houston, Los Angeles, Washington, DC, and Hong Kong.)