Fitch: As U.S. Hotels Peak, CMBS Wearily Watched

The days of strong RevPAR growth and occupancy rates are over for U.S. hotels, which could impair loan performance for CMBS as interest rates rise, according to the latest video in Fitch Ratings’ Virtual Investor Series.

While Fitch maintains a favorable outlook for the hotel sector, demand has peaked and several key hotel industry metrics could turn negative by 2018. ‘We’re now at the top of the cycle looking down,” says Stephen Boyd, senior director, U.S. Corporates. “The trajectory of the economy, geopolitical shocks and the U.S. dollar will be key factors in shaping the market going forward.’

Most hotel brands will likely see occupancy rates fall this year, with RevPAR declines to follow in 2018. There may be differentiations among the hotels REITs depending on their market exposure.

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With hotel now at the top of its current cycle, loans maturing in 10 years will do so in a higher interest rate environment, according to Managing Director Huxley Somerville. Additionally, rising construction levels are an early warning indicator that a peak in the cycle has arrived. Evidence of this is in New York City, which according to Somerville is now the worst performing market in the country with regard to RevPAR growth.

“Miami, Houston and Seattle also have hotel construction in excess of 15% of current supply so we’re casting a wary eye on those markets as well,” said Somerville.