Demand for luxury hotels up.

Luxury hotels, which saw growth spurt by an industry-leading 5.2 percent in 1993, will continue to steer the lodging industry recovery with an average annual demand growth of 4.2 percent through 1996, forecasts the latest issue of Coopers & Lybrand Hospitality Directions, the firm's quarterly hospitality research journal.

"Competitive pricing was key to the luxury hotels' 5.2 percent demand growth in 1993," said Mark Woodworth, chairman of the National Hospitality Industry Consulting Group for Coopers & Lybrand. "And it will continue only slightly abated in the three years ahead. This sector showed the sharpest decline during the recession but the sharpest recovery to date, and we believe that edge will continue through 1996."

The substantial rise in demand for luxury hotels in 1992 and 1993 can be partly attributed to sluggish average daily rates, which rose only 1.9 percent in 1993, Woodworth pointed out. However, this sluggishness increased the relative attractiveness of luxury hotels from a value perspective. Occupancy rates at luxury hotels also benefitted from a dramatic decline in room supply growth.

Mid-priced properties will constitute the next most robust segment over the next few years, Coopers & Lybrand Hospitality Directions forecasts. Demand growth for this segment should approximate 4 percent a year, due largely to the success of upper limited-service hotels, most of which fall into the mid-priced category. However, economy and budget hotels, which experienced the most lackluster demand growth in 1993, will continue to lag the other sectors over the next three years, the research journal forecasts.

Budget hotels are defined as properties with rates in the bottom 20 percent in their respective markets; economy hotels represent those in the next 20 percent. Budget hotels found revenue per available room down 5.8 percent in 1993 from its pre-recession level, and economy hotels were up only 1.8 percent, compared with much larger increases for mid-priced, upscale and luxury hotels.

"Weakness among economy and budget hotels is most likely attributable to a shift in consumer preferences toward higher quality products, which consumers perceive to offer a better value for the price, as well as increased concern about hotel security," said Woodworth. "Also, many are older properties converted from franchised brands to independent or lower-priced ones because of their inability to maintain standards. Thus, a larger share of economy and budget hotels comprises older properties that have lost their competitive edge."