DENVER—Many of the top U.S. hotel markets realized record performance figures in 2015, continuing an upward trend that has brought about an unprecedented amount of proposed hotel supply. HVS’s annual Hotel Market Connections conference series, which concluded Thursday, June 16, also revealed insights into supply, demand, performance, and transaction dynamics for the first half of 2016.
As of June 2016, U.S. hotel inventory stands at 54,258 hotels (5,066,697 rooms), with 4,154 new hotels (509,607 new rooms) in various stages of the pipeline.
“Comparing this year with 2015, occupancy is holding steady nationwide, while average rate is still trending upward,” said HVS Managing Partner Rod Clough, MAI. “However, cap rates are on the rise as buyer expectations for the near term are not as aggressive as those in 2015. This has created a gap between buyer and seller expectations, as well as a slowing of deals ultimately closing in 2016.”
Nationwide, 2,026 hotels transacted in 2015, totaling more than $40 billion. Comparable figures from the first quarter of 2016 show that the transaction market has slowed but remains active. While a recorded 516 properties sold in the first quarter of 2015, there were 347 assets sold during the same period this year. Average price per room in the first quarter of 2015 was $185,222, versus $138,361 this year.
Market-specific highlights include:
Atlanta hotel values, which grew 6.6 percent last year, are expected to rise modestly through 2019. The Hilton Atlanta sold in October 2015 for $174,500,000 ($140,499 per room), the highest-priced transaction for the year. The W Atlanta Downtown and the Renaissance Concourse Atlanta also sold in 2015. With market-wide occupancy at an all time high of roughly 70 percent in 2015 and forecasted to continue to increase in the near term, new supply is expected to enter the market over the next two years.
Chicago’s hotel inventory will increase by more than 8,360 new rooms over the next several years, with most of the new hotels concentrated in the CBD. Despite lower compression from Downtown, the city’s suburban markets should still experience strong growth, with limited new supply on the horizon. RevPAR for Chicago hotels averaged $142 in 2015.
The Denver hotel transactions market has been very active in 2016, with 21 sales totaling just over $242,600,000 recorded through April. Given the entrance of more than 6,500 new rooms over the next several years, average occupancy in Denver is forecast to decline from 75.7 percent in 2015 to just under 73.0 percent in 2019. Average rate, however, is anticipated to climb to nearly $131.00 over the next three years, up from $120.81 in 2015.
At least five new luxury hotels are expected to open in New Orleans by 2020, and upscale room availability in the market will increase to approximately 26 percent by 2019, according to HVS. The 234-room Ace Hotel, which opened earlier this year, and several proposed lifestyle hotels signal the strength of New Orleans’ appeal to millennials. New upscale brands, along with high-profile boutiques, should support average rate increases in the market.
Occupancy in Portland, Oregon, is forecast to decline modestly (from 74.9 percent in 2015 to 72.9 percent in 2019) given the projected entrance of more than 4,100 new rooms. Average rates, however, are expected to rise, supporting a forecasted market-wide RevPAR of $107.78 in 2019. Six hotels have transacted so far this year, including the Hotel Monaco Portland, which sold in March for $114 million, or $515,837 per room. HVS expects values to stabilize over the next two years, with the next upswing forecast for 2019.
Occupancy in Manhattan finished 2015 at 87.2 percent. Demand has been growing since 2009, and the market is anticipated to receive nearly 60 million visitors in 2016. Even with hotel supply increasing at a record pace, HVS forecasts occupancy to hold in the mid-to-upper 80 percent range through 2018, with average rate rebounding at a conservative pace next year. Hotel values in greater New York City fell slightly in 2015, a trend expected to continue this year and next. HVS forecasts a minimal rise in values in 2018 and 2019, corresponding with a rise in RevPAR.
