Since the government has notified us we've officially been in a recession since December 2007, we have a broad explanation for why hotel values declined in 2008. Specifically, in the case of hotel values, business and consumer sentiment turned bleak, so potential guests have been traveling less and paying closer attention to prices when they do go on the road. People are traveling less, partially because of fears about the economy, and partially because of reduced airline capacity. This behavior will result in lower hotel occupancies, average daily room rates and profits in 2009. These changes mean lower hotel values in 2009, too.

At this point, there are few economic indicators to suggest positive growth in hotel values. To the contrary, there are more negative than positive signs, meaning hotel values are now projected to fall further in 2009 than they did in 2008. We know in retrospect, of course, that hotel values peaked in 2007, but it is still basically guesswork to project when the value trough will occur.

Others have suggested they know when the trough in hotel performance will happen, but largely based on intuition and knowledge of previous recessions. However, every recession is a little bit different, with the current one marked by a dearth of financing for hotel acquisitions, particularly for large-scale purchases. This credit crunch is creating continued downward pressure on hotel values.

There's plenty of government effort not only to get funds to the banking community, but to get more funds lent to businesses rather than used by banks for discretionary purchases like acquiring other banking institutions. However, those wheels are turning very, very slowly.

One positive factor in this recession is oil prices have fallen further than almost anybody projected. Unfortunately, with average unemployment rates expected to climb above seven percent in 2009, and many of those still employed fearing layoffs, lots of folks won't be traveling in 2009 regardless of how low oil prices go. Further, most economists expect oil prices to increase in 2009.

Another positive factor in the economy is the considerable energy in the federal government toward pragmatic fiscal stimulus aimed at infrastructure spending, extending unemployment benefits and job training, in addition to bailing out financial institutions and manufacturers. These actions should produce long-term growth in economic output, meaning that they ought to result in GDP increases and an end to the recession.

The big question at this stage is just how quickly these actions will take hold. Given everything we know right now, my instincts suggest that the bottom in hotel values will happen in 2010, followed by a period of slow growth, and then a period of more dramatic growth; but again, such projections are based on gut feel as well as hard economic data.

Now, on to the Penn State Index of U.S. Hotel Values, which uses an econometric model to project hotel values. The Index projects that overall hotel values will decrease by 7.7 percent in 2009. All hotel types are expected to register value decreases in 2009, as they did in 2008.

With luxury hotel lodging demand experiencing its most significant drop since 2001, luxury hotels are expected to register the largest dollar decreases in value, decreasing by approximately $23,000 per guest room. Economy hotels operate with the lowest overall occupancy rates of all hotel types, and are currently operating very close to their break-even point. As a result, they are expected to experience the largest percentage decreases in value with a 13.7-percent decline for the year.

*John W. O'Neill, MAI, CHE, Ph.D., is managing director of Hospitality Advisory Services, LLC, and associate professor in the School of Hospitality Management at The Pennsylvania State University. He can be reached at jwo3@psu.edu or 814-863-8984.