This week, the asset management unit of Seoul–based Mirae Asset Financial Group acquired a 15-hotel portfolio in the United States from Anbang Insurance Group Co. for $5.8 billion, marking the single-highest price tag for an overseas alternative investment by a South Korean company.
The foreign investor is seeing a huge investment opportunity within the U.S. hotel market. So what’s been going on in the sector?
The U.S. hotel pipeline has reached a high of 200,000 rooms in construction, which is the highest it’s reached in a decade.
During the “Riding the pipeline’s 10-year high” session at the 2019 Hotel Data Conference, Dominik Kozissnik, global director of census at STR, parent company of HNN, looked into what has changed in the U.S. pipeline since 2007.
At the previous hotel construction high in 2007, there were more than 211,000 rooms in construction in the top 25 U.S. markets. This July, there were 206,000 rooms.
The markets have changed in terms of rooms in construction across the top 25 markets. Cities such as San Diego, Seattle, and Richmond, Va., have dropped off since 2007, and new markets such as Denver, Philadelphia, and Columbus, Ohio, have joined the top 25 markets for rooms in construction in 2019.
And there are 695,000 rooms in the pipeline, and the majority are in final planning. There are 77,000 rooms slated to open during the rest of this year, and 224,000 rooms expected to open in 2021.
Analysts at Lodging Econometrics reported at the end of first half 2019, the top U.S. market with the largest hotel construction pipeline is New York City, with 166 projects comprising 28,231 rooms. Next are Dallas and Los Angeles, with 162 projects/19,972 rooms and 158 projects/25,428 rooms, respectively. Houston follows with 146 projects/14,998 rooms, and Atlanta with 130 projects/17,280 rooms.
The franchise company leading the U.S. hotel construction pipeline is Marriott International, with 1,469 projects comprising 193,458 rooms, up 9 percent by projects and rooms year-over-year, according to Lodging Econometrics.
Hilton Worldwide follows in second with 1,372 projects/152,853 rooms, a 3 percent increase year-over-year. And in third, InterContinental Hotels Group (IHG) has 962 projects/97,647 rooms, also up 3 percent by projects and rooms, year-over-year.
In first half 2019, 70 percent of the new hotels that opened in the United States belonged to Marriott, Hilton or IHG. Marriott opened 120 new hotels/15,429 rooms, Hilton opened 125 new hotels/14,553 rooms and IHG opened 69 new hotels/7,406 rooms.
Despite the high construction volume, there are declining numbers to report. Some 26 of the 60 markets tracked by CBRE Hotels’ Americas Research had declining RevPAR in second quarter 2019, five more than in first quarter 2019. And national occupancy decreased 0.1 percent year-over-year, keeping occupancy just above 70 percent during second quarter 2019. Some 30 markets had declines in occupancy, one more than in the first quarter.
Of the top 10 markets for RevPAR growth, five had increases driven primarily by ADR growth. Minneapolis and Philadelphia produced their RevPAR gains despite declining occupancy — the only two of the top 10 RevPAR markets to do so.
For the second consecutive quarter, secondary and tertiary non-coastal markets represented the top demand markets by occupancy change. Demand growth outpaced supply growth, and occupancy increased in nine of the top 10 markets. Nashville was the exception with no occupancy growth.
While both tourism and business travel continue to grow, the rate of growth is expected to decline sharply according to new research from the U.S. Travel Association.
During first half 2019, the number of international visitors coming to America dropped nearly 1.7 percent, according to preliminary data from the Commerce Department’s National Travel and Tourism Office, which shows slightly more than 37 million foreign travelers came to the country between January and June.
Trade wars with China could cost the country 1.9 million inbound visitors and $11 billion in spending between 2018 and 2020, according to research from the consultancy Tourism Economics, part of Oxford Economics. Through July, travel from China is down 3.7 percent compared with the previous year, according to Commerce Department figures.
