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Three Insights from Marcus & Millichap’s Q2 2018 National Hospitality Research Report

Three Insights from Marcus & Millichap’s Q2 2018 National Hospitality Research Report

Room demand for U.S. hotels is set to remain high, thanks to a combination of employment growth, increased consumer spending, and rising occupancy, according to Marcus & Millichap’s Q2 2018 National Hospitality Research report. ADR and RevPAR for Q2 increased, due in part to occupancy reaching a 30-year high in March 2018. However, despite this trend, the report showed that increasing supply in several markets may translate to drops in occupancy and slower RevPAR growth. Below are three key trends from Marcus & Millichap’s Q2 2018 National Hospitality Research report.

Spending and Travel Demand Are Up, Boosting Occupancy

Low unemployment, increased hiring, and rising wages have created an environment in which consumers are planning to spend more on travel this summer, according to Marcus & Millichap’s Q2 2018 report. With consumer confidence up, hoteliers can expect growing demand and, as a result, higher occupancy levels.

With first-quarter occupancy up 60 basis points from the same period last year to 61.1 percent, annual occupancy rose 50 basis points during the past 12 months to 66.1 percent. Certain markets drove significant occupancy growth, including Orlando, which posted a 420 basis point increase over the past four quarters to 80 percent. In 2017, the city broke a U.S. travel record as it surpassed 70 million visitors.

Occupancy rose across most chain scales in the past year, particularly among independent properties and luxury hotels, which saw 80-basis-point and 60-basis-point year-over-year increases, respectively. Resort demand also increased, with occupancy jumping 130 basis points in the previous 12-month period, according to the Marcus & Millichap report.

Increased Supply Could Impact Occupancy

Increasing supply in markets across the country could start to affect occupancy, according to the report. In Nashville, for example, 5,200 rooms are under construction—about 12 percent of the market’s existing room inventory. This rising supply has surpassed room nights and resulted in an occupancy drop of 60 basis points in the past 12 months.

Limited-service hotels are the main force behind the hotel construction boom nationwide. This segment added 200,000 rooms across 993 hotel projects in the 12 months ending in March 2018, and another 186,000 rooms are underway. Plus, 221,000 rooms are expected to break ground in the next year.

Among major U.S. metros, New York has the largest construction pipeline, with nearly 12,000 rooms in its pipeline. In the year ending in the first quarter, the city added 5,600 rooms, largely in the upper upscale and independent segments.

Private Investors Are Targeting Independent Properties

Private investors are targeting hotels in smaller markets with a focus on independent properties. According to the report, the share of private investors who are competing for properties has risen since 2014. Consumer demand for unique experiences has a hand in driving this trend, according to the report.

The upper upscale segment has seen an uptick in trades, with sales rising about 30 percent in the previous 12 months ending in the first quarter. Most of these transactions involved Hilton- and Marriott-branded properties.

The Northwest region saw more sales activity during this period, particularly from owner-operators purchasing hotels with fewer than 100 rooms in Idaho and Montana. Georgia also saw more activity, specifically in the Atlanta region.

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