Clarity on a new tax law will push hotel investors to capitalize on new assets, according to the Marcus & Millichap’s recently released Hospitality Outlook for midyear 2018. In the first half of 2018, 1.3 million jobs were added to the economy, which lowered the unemployment rate to below 4 percent. With new jobs available, personal disposable income has grown to 5.4 percent, allowing consumers to spend more on travel, the report says. Other key findings from the Hospitality Outlook include the following.
Record-level consumer and business confidence
The lowered unemployment rate and added jobs created confidence in economic growth for commercial real estate properties and, in particular, for hotels. Increased disposable income drives travel, pushing the national occupancy rate to continue growing.
This growth outpaces last year’s and is forecasted to continue. Job availability, strong hiring, and wage growth have pushed personal and business travel. Occupancy hit a 30-year record in Q2 2018 at a high of 66.3 percent while both RevPAR and ADR increased more than 20 percent from pre-recession peaks.
The trend is predicted to continue throughout 2018. By the end of the year, national hotel inventory is expected to increase 5.5 percent since 2015, the largest growth over three years.
Growth in occupancy, construction, and RevPAR
Annual occupancy is expected to increase 60 basis points from 2017 by the end of the year. As room demand is predicted to grow, travel expectations and occupancy predictions improve. Construction has seen a 2 percent year-over-year increase, mostly in the upper-midscale and upscale segments. Additionally, the occupancy levels are expected to boost ADR 3.6 percent and RevPAR 2.6 year-over-year—both rising faster than last year’s.
Hotels adapting to consumers
Home-sharing and other lodging accommodations have created uncertainty for the hotel industry, a worry that wasn’t as prominent 10 years prior. Guests want authentically local experiences, and the report has found that hotels are responding to these demands by offering brands catering to the millennial demographics and independent properties that adapt to that consumer need.
Smaller markets are becoming more popular among consumers, and this trend is supporting strong interest and performance from investors. In particular, sales increased in the Northwest, Southwest, and Carolinas, with more than 20 percent interest in each region.
However, this expected growth could be slowed by elevated supply in some markets, especially metro areas. The report sites that hotel room demand in Los Angeles, Calif., for example, has slowed during Q2 due to elevated supply and market saturation.