Hotel Investors Show Confidence in Lodging Market

Hotel investors are more confident about the lodging sector now than they were in late 2016, reported JLL, Chicago.

“Investor sentiment notched a notable increase in early 2018, resulting in a more optimistic environment than we’ve seen in a number of quarters,” said JLL Hotels and Hospitality Group Americas Chairman Arthur Adler. “Strong revenue per available room trends, a robust macro economy, the rising stock market and corporate confidence from tax reform and other governmental initiatives have helped fuel investors’ confidence.”

Adler noted hotels also give “favorable strong” risk-adjusted returns and a hedge against inflation.

Investors expressed a more confident outlook for three-quarters of the North American markets in the survey compared to one year ago, JLL said. Los Angeles, Washington, D.C. and San Francisco received the most positive performance expectations, followed by Boston and Hawaii.

STR, Hendersonville, Tenn., said the hotel industry registered “record-breaking” performance last year.

Compared with 2016, hotel room occupancy increased 0.9 percent to 65.9 percent, average daily rates rose 2.1 percent to $126 and revenue per available room rose 3 percent to $83. “The absolute values in those three key performance metrics were each the highest STR has ever benchmarked,” the firm said. 

The hotel sector also set records for supply with more than 1.8 billion roomnights available and demand with more than 1.2 billion roomnights sold, STR said. Demand rose 2.7 percent, significantly outpacing supply, which grew 1.8 percent–the largest for the industry since 2009.

“The industry outperformed projections and reached record-breaking levels across the metrics in 2017,” said STR President and CEO Amanda Hite. “Late-year demand growth–which was no doubt boosted by post-hurricane business in Houston and several major Florida markets–pushed well past a healthy influx of new rooms entering the marketplace. That allowed the industry to end the year well above forecasted levels after seeing more modest rates of growth through the first half of 2017.”

Hite called U.S. hotels “in a solid position” for 2018 due to the tax cut signed into law in December and expected strong GDP growth. “Construction activity is on the decline for the first time since 2011, so even as demand growth subsides, the effects on occupancy and rates should be more manageable for hoteliers,” she said.

Looking at fourth-quarter figures, TravelClick, New York, said average daily rates and bookings grew 1.2 percent and 4.3 percent, respectively. Revenue per available room increased 5.6 percent.

“This level of growth has been long awaited by hoteliers, especially given how inconsistent the past year has been as a result of natural disasters, shifts in public policies and international tensions,” said TravelClick Senior Industry Analyst John Hach.

STR Vice President of Consulting and Analytics Carter Wilson said the hotel sector could continue to see strong performance. “We’re looking at continued growth in 2018 fueled by strong underlying economic indicators and upgraded GDP forecasts,” he said. “Coupled with moderating supply growth and a slight uptick in pricing power, the industry should see record fundamentals through 2019.”