HOTEL FALL UPDATE
Written by: Aaron Jodka
As Research Director | U.S. Capital Markets, Aaron is responsible for all aspects of research within the Capital Markets platform. He synthesizes and interprets a variety of data and information to stay ahead of trends that put our clients in an optimal position to make informed decisions. With a deep understanding of markets throughout the country, he provides a unique perspective on market dynamics across asset types and investment strategies, providing clients with tailored data and analytics to ultimately guide decision-making solutions. Check out his post on Colliers Knowledge Leader here.
No property type’s fundamentals have rebounded as swiftly as hotel’s.
Hotel occupancies hit 63.2% in late September, an increase of 14.3 percentage points.
RevPAR (revenue per available room) gains have been strongest in higher-priced hotels, with luxury and upper upscale leading the way.
Some of the hardest-hit markets have rebounded the most soundly, with Boston, New York, Oahu, and Nashville leading in RevPAR gains over the past year.
As business travel increases, investors can still find upside in hotel acquisitions and income streams.
When summer ended, the hotel market was in a far different place than at the same time one year ago. That isn’t a shock — fundamentals were highly stressed last summer, outside of certain segments of the hotel market. Transportation Security Administration data shows a nearly 140% annual increase in total passenger volume between September 19–25. At the same time, per STR data, hotel occupancies had rebounded to 63.2% across the U.S., from 48.9% one year prior. The combination of improving occupancy rates and increased room rates (ADR) has boosted overall RevPAR (revenue per available room), which is up 78.4% nationwide. That growth is highly segmented to the upper end of the hotel market, within the top 25 markets in the country.
Occupancy rates at luxury and upper upscale properties remain below those of other industry segments, although luxury occupancies have more than doubled from year-ago levels. Upper upscale hasn’t quite met that same threshold, but has had the second-strongest occupancy gain of any segment, while its room rates have soared, along with RevPAR. Luxury RevPAR increased 183%, while that of upper upscale increased 160.4%.
Within markets, the rebound has been most acute in the top 25. RevPAR in those markets is up 119.5%, while a more modest 62.2% gain happened everywhere else. Individual cities with the best annual growth are Boston (273.5%), New York (266.9%), Oahu (252.8%), and Nashville (220.7%); these markets are a mix of business centers, leisure markets, convention cities, and destination vacation locales. As we have seen with recent sales volume, investors are chasing hotel properties. Stability in the economy and in the midscale segments remains attractive to private investors. However, the dramatic turnaround in hotel performance in some of the hardest-hit markets is a sign of broader economic recovery. Places like Boston and New York posted positive office net absorption in the third quarter. As business travel increases, so should occupancies and room rates. Ultimately, the recovery in RevPAR still has legs.