The 2015 Lodging Conference in Phoenix, AZ…
In October I attended the Lodging Conference in Phoenix, AZ and the sentiment of the gathering was positive. Attendees and industry experts alike see more revenue growth on the horizon, but are tempering their expectations with the caution of new supply hitting key markets during the expansion years of 2016-2018. This increase in supply gives rise to the concerns in maintaining or increasing value for hotel owners. It is suspected that the US market will begin to soften as revenues begin to flatten in the next 12 – 24 months followed by a decline in revenues.
Highlights:
Hotel Market Insight | Lodging Econometrics |Presented by JP Ford CHB, ISHC, Senior Vice President
The Lodging Real Estate Cycle from 2014-2016
- Full Operating Recovery
- Early Transaction Recovery
- New Project Announcements
- Entering a time of Expansion
The Lodging Real Estate Cycle from 2016-2018
- Peak Earnings
- Peak Transaction Activity
- New Hotel Opening
- Cycle Peak
US Pipeline Construction is primarily consisting of:
- Upscale – 26% with 1012 projects including 133,706 rooms
- Upper Midscale – 30% with 1549 projects including 151,164 rooms
- Forecast show 94,628 new rooms in 2016 and 113,968 new rooms in 2017
US Transactions
Rising prices per room:
- More than 200 rooms
2013 – $215,000 per key
2014 – $224,000 per key
2015 YTD – $302,000 per key
- Less than 200 rooms
2013 – $77,000 per key
2014 – $106,000 per key
2015 – $104,000 per key
- Overall market will remain robust with transactions
- Construction Pipeline will grow steadily
- Supply concerns will be present in some markets
- Profits will remain strong for 2-3 years
- If you are an owner it is a great time to sell.
PKF Hospitality Research | Presented by Mark Woodworth
- Revenue growth is led by both business and leisure travel
- REVPar Forecast through 2016 is ahead of long run average
- Air B&B will be a concern moving forward
- Estimates state that 63% of Air B&B units are competitive with hotels
- Portland and Seattle are estimated to have about 10% – 12% Air B&B Rooms as a percent of hotel rooms
- Although profits seem strong through 2017, NOI is expected to go from 14.8% increase in 2014-2015 to 11.9% in 2015-2016
- Strong OCC levels will allow for growth in ADR
- Developers will be challenged by rising cost of labor and building materials
Smith Travel Research | Presented by Jan Freitag
2015 August YTD
- REVPar is up 6.7%
- Room Revenue is up 7.7%
- ADR Growth is healthy but OCC is taking a small dip
- Based on great recession, the OCC dip may be start of new recessionary time
- REVPar expected to grow for next two years – maybe
- Largest growth period since 1990 lasted for 80 months – we are currently at 66 months through August 2015 and questions about long term sustainability come to mind
- REVPar growth in Portland through 2015 August YTD was 15.3% giving it a top 5 position across the US
- Many projects in the pipeline with 67% of new construction occurring with Upscale and Upper Midscale assets
- Outlook on REVPar nationally will be 6.8% in 2015 and 6% in 2016
HVS | Presented by Adam Lair MAI
- Transactions are up by dollar and volume
- Most deals are between $100,000 and $200,000 per key
- CAP Rates are between 8.5% and 9% for Limited Service Hotels
- CAP Rate are between 7% and 7.7% for Full Service Hotels
- The Hotel Valuation Index from HVS identifies Seattle and San Francisco as top markets in 2015
- Value growth by ADR in 2015 was about 10% in Portland and 11% in Seattle
- 2017 is expected to be a top tier market for San Francisco and Seattle
- Values are expected to rise and peak in next 2 years
- Supply is of concern due to new development
- Ideal conditions for transaction volume to remain steady or grow due to low cost of capital and improving ADR
The Economic Outlook | Presented by Bernard Baumohl
- Spending on Commercial Construction has been robust with 2015 gaining 34.8% over 2014
- From 2015 to 20016 construction will grow by 29% for lodging assets
- Federal Reserve is likely to raise rates later this year.
Real Capital Analytics |Presented by Robert M. White Jr. CRE, FRICS
Through mid-2015 over the previous time period in 2014
- Limited service hotels showed increase of 30% in pricing and 60% in transaction volume
- Full service hotels showed increases of 35% in pricing and 75% in transaction volume
- Among the most active markets through 2015H1 were
- Seattle – $7,171,000,000 and YOY Change of 85%
- San Francisco – $7,401,000,000 and YOY Change of 7%
- Portland – $2,267,000,000 and YOY Change of 83%
