Healthy economic growth and tax cuts will benefit the hospitality industry this year, according to Marcus & Millichap’s 2018 Hospitality North American Investment Forecast report.
The annual U.S. occupancy rate is forecast to climb 30 basis points in 2018 to 66.3 percent. Increased demand will bolster improvements in ADR and RevPAR, albeit at a moderated pace of growth compared with the previous five-year average.
Supply growth has held steady as well. Nearly 180,000 rooms were completed last
year, increasing supply 1.9 percent. In 2018, supply will rise 2 percent with
the bulk of hotels falling in the upscale and upper midscale segments. Overall,
the majority of completions are located in larger markets with the most rooms
under construction in New York City, Nashville and Dallas/Fort Worth. Many
smaller markets have limited construction pipelines, benefiting room demand and boosting ADR and RevPAR growth.
Average hotel cap rates have remained in the mid- to high-8 percent range during the last two years as well, with a yield spread above the 10-year Treasury of about 640 basis points. Many investors believe cap rates will rise in tandem with interest rates, but that has not been the case historically. Tightening first-year returns in several other property types could entice investors to seek the higher yields offered by hotel properties.
“Undoubtedly, new challenges will emerge in 2018, but numerous forward-looking metrics still point to continued vigor in the hospitality investment sector,” predicts Marcus & Millichap.
