Factors Impacting Hotel Market Performance

It is generally accepted that hotel development, investment and acquisition follows three basic steps, (Waterman 2001) 1. Identifying market areas that show long term potential for hotel investment 2. Choosing a lodging product that takes advantage of the dynamics of the local supply and demand characteristics. 3. Search and selection of a suitable site. Whereas hotel investors and market analysts have access to top line performance data, such as Occupancy, Average Daily Rate, RevPar , these represent historic information. As such, these data points are useful in that they provide market trends, which can be used to extrapolate future performance. However, these extrapolations are made on the assumption that each of these performance indicators is related to underlying macro economic indictors and other drivers of hotel market performance. For example, it is generally accepted that there is a strong relationship between lodging demand and Gross Domestic Product. Practitioner studies such as a longitudinal research conducted at Pricewaterhouse Coopers by Dr. Bjorn Hanson, established that a strong correlation exists between U.S GDP and hotel room demand, (Economist Update, 2009). A few academic researchers have systematically, studied the impact of other economic factors on hotel, market performance, (Choi, Olson, Kwansa and Tse, 1999; Wheaton and Rossoff, 1999; Canina and Carvell, 2005). However, in general research studies that relate macro economic market indicators to hotel market performance are limited in the hospitality literature