If 2016 was all about overseas money flowing into the U.S. hotels sector, then 2017 could well be the year of the domestic investor. With the U.S. economy performing strongly and hotel occupancy in the country reaching a new record in 2016 despite increases in supply, U.S. investors are taking a keen interest in assets closer to home.
Domestic private equity funds and real estate investment trusts (REITs) stand to be quick off the mark to step up their investment activity.
Hotel REITs have seen a resurgence in share prices, up about 20 percent in the past few months. Private equity funds also have a substantial amount of cash to deploy, and in some cases they are under pressure to invest and buy hotels.
Meanwhile, money from offshore sources is likely to decrease, particularly with China reining in its outbound investment activity. During 2016, about 40 percent of hotel investment came from offshore investors. For 2017, the lion’s share of hotel investment is expected to come from domestic sources.
Growth will be far from evenly spread across the country. According to the 2017 Hotel Investor Sentiment report produced by JLL, Boston is the top choice for investors, followed by Hawaii; Washington, D.C.; Atlanta; and Seattle. Houston shows the highest perceived risk.
In addition to assets in prime gateways such as New York City, investors will go after individual hotels or a hotel portfolio where they can help rewrite the story — whether by rebranding, renovating or repositioning — and unlock more value. Investors are keeping a close eye on the business travel market because it is a bellwether of the financial health of U.S. companies. To date, that indicator has been strong, which also indicates leisure travel will maintain its strength, especially with unemployment low and consumer confidence high.
Investors are expected to be selective about new hotel development, while looking for value-added investment opportunities at existing properties, with a focus on full-service hotels with 300 rooms or more, especially in central business districts and resort markets.
Despite the slowdown in new construction starts, new room openings are expected to reach a peak this year, with a large proportion of the openings coming from select service hotels, such as Holiday Inn Express and Hampton Inn.
Geraldine Guichardo is Americas head of research for the Hotels & Hospitality Group at JLL.