David Larkin is a director at GRS Title. He can be reached at 973.362.4539 or via email at email@example.com
Commercial real estate’s hotel sector reportedly put up some of its best all-time revenue numbers last year, and 2019 is poised to improve on that landmark, according to a recent hospitality report by Integra Realty Resources (IRR) (download here).
Among the all-time highs over a 12-month average were occupancy rates, at 66.2 percent; an ADR (average daily rate) of $128.27 and RevPAR (revenue per available room) of $84.98. IRR predicts all three numbers will increase over 2019’s 12 months.
The strong performance correlates with the success of the U.S. economy over the last few years, which has driven increases in tourism and business travel, including higher trade show and convention attendance.
The top hotel metropolitan markets in terms of RevPAR growth, predicted to come in between five percent to 10 percent over the coming year are: Chicago, Miami, Minneapolis, Philadelphia and San Francisco. By type of hotel, independent facilities are expected to see the most growth, rising 3.5 percent, followed by midscale, upper midscale and high end. Valuations for hotel properties overall rose just over five percent in the last 12 months, IRR cites Green Street Advisors as reporting.
Construction keeps rising with the strong fundamentals. There were 619,600 hotels planned for construction as of June last year, a rise of 6.1 percent from nine months previous. There are 187,000 rooms under actual construction, which is a 2.1 increase from the fall of 2017, however, it is still lower than the highest-ever underway at once, 211,700, in December 2007. Boston, Miami and Pittsburgh are seeing the most supply come online, and 81.3 percent of markets are in a building phase.
In the transaction space, capitalization rates are currently at 8.1 percent for full-service assets and 8.8 percent for limited service, and IRR only expects those to rise 25 basis points as the year proceeds. For all of 2019, cap rates in 60.6 percent of markets are expected to remain constant, though that figure is down from last year’s prediction of 72 percent that expected consistency.
Last year, there were several big mergers in the hotel world. Pebblebrook Hotel Trust spent $5.2 billion on LaSalle Hotel Properties, and the former then turned around and sold five assets for $820.8 million. Meanwhile, there is still talk of MGM Resorts considering a sale.
On the downside, IRR sees Houston and Washington, D.C., as markets where value is deaccelerating, and there is concern of supply in some markets.
Meanwhile, competition between brands is fierce, as are customer demands. It’s also hard for operators to keep pace with all of the new technology services expected by consumers, and there is also fear of Internet security, so there is not a repeat of the Marriott International data breach that impacted 500 million consumers.
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