Commercial Investment Real Estate May/June 2016 | Page 24

U.S. Hotel Market:
An Overview
Demand is high and fundamentals are strong — for now.
T ere’s an imbalance in the hotel segment
right now, but it’s benef ting investors and
hotel owners. Demand is far outpacing sup-
ply. T at simple dynamic has built a strong
hotel segment across the United States, and
it continues to gain steam in many of the
largest U.S. markets. T anks to that short-
fall in supply, the hotel market should con-
tinue to improve over the next few years.
T e data supports market observations;
it’s clear that demand for U.S. hotel rooms
should remain high over the next several
years, and investors and hotel operators
should benef t from higher revenue per avail-
able room and higher average daily rates in
markets from coast to coast.
T
Market Fundamentals
The U.S. hotel segment has experienced
78 consecutive months of positive growth,
according to Marcus & Millichap’s National
Hospitality Group. T e market is buoyed by
more than 60 months of steady employment
gains, and 2.5 million new jobs are pro-
jected for 2016. T e U.S. has already added a
healthy 414,000 jobs in January and February
this year, exceeding predictions from labor
economists. T roughout the country, healthy
job growth has translated into continued
demand for business and leisure travel, which
has yielded strong ADR and RevPar growth.
Supply. Approximately 132,000 rooms are
under construction throughout the coun-
try, according to travel research f rm STR.
A majority of them are upscale and upper-
midscale chains, represented by Hilton and
Marriott’s familiar f ags.
At this point in the cycle, the top-tier cities
are approaching all-time supply highs, lim-
iting the potential for continued occupancy
gains. T e San Francisco market is the perfect
encapsulation of this, as occupancy dipped
by 0.9 percent in third quarter 2015, but the
occupancy level achieved was 90.3 percent.
Demand. U.S. hotel occupancy is expected
to remain at record levels through 2017, based
on data from PKF Hospitality Research/
CBRE Hotels. In the December 2015 edition
of Hotel Horizons, PKF estimated demand to
exceed supply in each of the next two years.
As a result, a national occupancy rate of 66.0
percent is projected in 2016 and 2017, which
is nearly identical to Marcus & Millichap’s
projection of 65.9 percent.
Occupancy. Calendar year 2015 was the
best year on record for occupancy rates. In
2015, occupancy rates averaged approxi-
mately 73 percent for full-service proper-
ties, and 70.5 percent for limited-services
properties, according to Integra Realty
Resources’ Viewpoints. T ese record occu-
pancy rates top the previous peak, set in
1995, of 64.7 percent and stemmed from
National Hotel Outlook
2014 2015 2016
Occupancy 64.4% 65.6% 65.9%
Demand Growth 4.4% 2.9% 2.1%
Supply Growth
ADR
Annual Change
in ADR
RevPAR
Annual Change
in RevPAR
0.8% 1.1% 1.6%
$114.92 $120.01 $125.41
4.2% 4.4% 4.5%
$74.04 $78.67 $82.64
8.0% 6.3% 5.0%
* Forecast
Sources: Marcus & Millichap Research Services, STR, Inc.
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May | June | 2016
Commercial Investment Real Estate
by Jeff Greenwald, MAI, SRA, FRICS