CREShow: Experts Bullish on the Hospitality Sector
With occupancies and room rates climbing, the hotel industry faces a bright future, making it a good time for investors to consider entering the market.
That was the consensus of show host Michael Bull and his guests during the most recent episode of “America’s Commercial Real Estate Show.”
The U.S. hotel sector should end 2012 with an overall occupancy rate of more than 61 percent, an increase of 1.5 percentage points from the close of 2011 and very close to the sector’s long-term average, said Mark Woodworth, president of Colliers PKF Hospitality Research. Room rates should grow by 4.2 percent this year, he added.
“We’ve clearly come off the bottom, and the sailing looks very clear as we move forward,” Woodworth said.
While the hospitality industry is excelling overall, there are property types and markets that continue to struggle, show guests noted.
Budget hotels, whose performance is tied closely to the employment picture, are still struggling, and hotels of all kinds in areas such as Phoenix and Scottsdale, Ariz., are having a hard time, Woodworth noted.
“A nice rule of thumb is, the higher your room rate, the better you’re doing,” Woodworth said, adding that the landscape is divergent from market to market.
The hotel industry has benefitted from a lack of new construction in recent years, and although the time seems right for new development, lenders remain skittish of making construction loans, guests said.
Acquisition loans for stabilized assets with strong cash flows are available, but “as soon as you talk about repositioning or you talk about construction, it changes the conversation dramatically,” said Edward Hoganson, an executive vice president with Crestline Hotels and Resorts.
In the hotel investment sales arena, the last few years have seen a real flight to quality, said Richard Jones, chief operating officer of Portman Holdings.
“Investors are looking for very low-risk, high-barrier-to-entry markets, markets with diverse sources of demand,” he said. “That has been a very dominant piece of the transaction market for the last couple of years.”
However, “a lot of [investment] opportunities are starting to open up in smaller, high-qualitysecondary markets, where there are better stories as far as employment and economic trends go, cities like Nashville, Austin and Denver,” Jones added.
The entire episode on the hotel and lodging industry is available for download at www.CREshow.com.
The next “America’s Commercial Real Estate Show” will be available Sept. 20 and will provide an update on the capital markets.