JLL: Domestic Hotel Investment Likely to Increase

Domestic investors will likely become more influential players in the U.S. lodging market as offshore capital from countries such as mainland China starts to slow, said JLL, Chicago.

JLL said European outbound capital to the U.S. hotel sector could increase slightly as well, offsetting slowing Chinese investment activity. The net result: U.S. hotel transactions could total $31 billion this year, the same as last year.

U.S. hotel occupancy reached a record last year despite supply increases, which suggests a “robust” market, JLL said. “That said, growth has become more uneven, and a handful of major markets such as Houston, Miami and New York have seen growth turn negative,” the report said. 

“Investors will grow their focus on assets outside of the top [U.S.] gateway markets in pursuit of higher yields,” said JLL Global Head of Hotels and Hospitality Research Lauro Ferroni. “In the U.S., market fundamentals are expected to fare best in Boston, Hawaii, Washington, D.C., Atlanta and Seattle in 2017.”

Buyer composition could also change, JLL said. Public real estate investment trusts could return to their prior status as major hotel investors, as shown by the Dow Jones U.S. Hotel & Lodging REIT Index, which grew 44 percent rally last year. Public REITs acquired $4 billion of U.S. hotel assets annually from 2011 through 2015 and could have significant buying power this year, too, JLL said.

“It seems a distant memory when public real estate investment trusts represented a significant [hotel asset] buyer share, but a comeback is likely and the impact of REITs’ activity will be driven by the extent to which their share prices rally,” the report said.

JLL predicted private equity investors, whose buyer share fell by half last year, will also be “somewhat more active” due to new capital raised.

“The U.S. has shown signs of economic optimism following Donald Trump’s victory in the presidential election,” JLL said. “The business community generally expects the administration to involve business-friendly policies, like lower tax rates and large infrastructure projects to stimulate economic growth, which could stand to benefit the hospitality industry.”