Most hotels likely to see occupancy rates fall next year

— -- Business travelers may notice quieter hotels next year.

Hotel forecasters have been busy revising their expectations in light of all the economic turmoil and an anticipated drop in business travel. One forecast suggests that U.S. hotels will fill the smallest percentage of rooms since the figure has been tracked.

In its 2009 forecast — completed in September, but revised after the stock market collapsed in October — PKF Consulting of Atlanta expects hotels to fill an average of just 58.3% of rooms, or a 4.4% drop in the occupancy expected this year. If true, that would be the worst occupancy rate at U.S. hotels since 1988, when Smith Travel Research started tracking the data.

The current lowest occupancy rate, according to Smith Travel, was 59% in 2002 — the first full year after 9/11, the start of the Iraq war and the SARS epidemic. Separately, Smith Travel's revised forecast is for occupancy to drop 3.5% in 2009, to 59.1%.

"Toward the end of September, it was as if somebody, somewhere, hit the pause button," says Mark Woodworth, president of PKF Consulting. "People said, 'I'm going to stop what I'm doing and adjust my strategies going forward.' "

October has been even more discouraging. Marriott International CEO Bill Marriott wrote in his Nov. 3 blog that "in just the last few weeks, our business outlook has further weakened."

Part of the problem is that declining demand for hotel rooms will coincide with a boost in new rooms — a double whammy for hotel owners and operators.

Lenders started to fuel hotel development starting in late 2005, and many new properties have been opening this fall — just as the market started to slow, Woodworth says. What does the climate mean for business travelers besides a calmer lobby?

•Better hotel rates. Once hotel managers see occupancy levels dip into the 50% range, they can be expected to cut rates to maintain occupancy levels and better cover fixed costs, Woodworth says. But even if prices stay flat, travelers would get a break. Average rates had risen steadily each year since 2004 by as much as 7.5% nationally, vs. the 3.5% long-term average, he says.