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Research - NOVEMBER 10, 2017

Investors maintain confidence in hospitality market

by Andrea Waitrovich

Investors maintain confidence in the hospitality market as occupancy and revenue metrics improve, according to Marcus & Millichap’s midyear 2017 report.

Potential headwinds do exist, however, including the growing construction pipelines in many major markets that may place downward pressure on occupancy, the average daily rate and RevPAR this year and into 2018.

Both domestic and international travels continue to rise, further benefiting room demand. Domestic and international passenger travel in the United States rose 3.8 percent during 2016. And rising incomes may spur additional leisure travel while increased jobs may further business travel.

Roughly 111,000 rooms in more than 950 hotel projects were completed nationwide during the last 12 months up to June. Texas and California have more than 20,000 rooms each that are expected to break ground in the next 12 months. Moving forward, nearly 187,000 rooms are under development and an additional 222,000 are expected to break ground in the next four quarters. The increased supply may place downward pressure on occupancy in the coming years.

The metros of Houston and New York City received the largest number of rooms as 4,200 and 5,400 rooms were completed, respectively, from July 2016 to June 2017.

Transaction velocity rose roughly 10 percent nationwide as demand picked up for properties in many of the country’s smaller markets. On average, hotel assets changed hands for nearly $100,000 per key, down slightly year over year as fewer properties in upper chain scales changed hands. The Carolinas and the Central

Midwest region led the nation, with the Mid Atlantic, Mid South and Southwest regions following. In prior years, coastal regions typically led sales volume.

 

To read the full report, click here.

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