Tony Mueller, Director
GRS Group
(312) 476-7621
tmueller@grs-global.com

We recently discussed here how the hotel sector of commercial real estate was expected to experience strong fundamentals throughout 2018, as well as more transactional activity, and those forecasts have seemed to hold true so far. Some might even say that hospitality has exceeded expectations in 2018.

In its second-quarter review of the sector (download here), Marcus & Millichap reported that hotel occupancy rates hit a 30-year high in March. And it looks like transaction activity is picking up, both on a major portfolio level and through smaller one-off purchases.

The Marcus report suggests that the overall strength in the economy is driving these strong hotel fundamentals. Both consumer confidence and business optimism are high, which bolsters both vacation and work-related travel.

Occupancy hit 66.1 percent over the last 12 months, a 50-basis-point increase from the same year-ago period. In turn, two of the industry’s key metrics, RevPAR (revenue per available room) and ADR (average daily rate). Overall RevPAR rose 2.9 percent year over year, hitting $84,17, with resort hotels leading the way, sporting a 5.3 percent jump, hitting $122.91. ADR was up 2.1 percent, reaching $127.36. Resorts were also the strongest category in this fundamental, jumping 3.3 percent.

On the construction end, there were about 200,000 rooms finished during the 12 months ended March, representing 993 assets. There are now 186,000 rooms being built and another 221,000 that are set to break ground in the next year. Two of the biggest names in the industry, Marriott International, and Hilton Worldwide, are leading the charge, with 31.5 percent and 26 percent, respectively, of all new rooms in the pipeline. New York City has the most rooms underway of any major metro area, with 12,000 in the works. The bigger story might be Nashville, though, with 5,200 rooms underway, which accounts for about 12 percent of its current hotel-room inventory.

Meanwhile, Host Hotels & Resorts is reportedly looking to shed a $2-billion chunk of its portfolio. This follows a deal earlier this year in which China-based insurer Anbang is weighing selling several major assets valued in the billions, likely to Blackstone, that it accrued during a buying spree a few years ago, such as New York City’s storied Waldorf Astoria.

But the transaction picture is not just limited to mega deals, according to Marcus. The firm said that private investors were responsible for more than all purchasing volume, in the range of $1 million to $10 million.

On the higher end of the scale, luxury hotels also saw transactions rise 30 percent year over year.

Hospitality seems to be firing on all cylinders lately, across all segments of this commercial real estate sector. If developers are on track with their building plans and fundamentals don’t dip as a result of oversupply, there isn’t much to complain about for the foreseeable future.

About GRS Group:  
GRS Group is a leading provider of commercial real estate (“CRE”) services worldwide. With offices across the United States, Europe, and affiliates around the globe, GRS Group provides local market knowledge with a global perspective for institutional real estate investors, occupiers and lenders worldwide. The GRS Group team has evaluated and advised on over $1 trillion in CRE transactions.