CHICAGO– Jones Lang LaSalle Hotels today released its bi-annual Hotel Investor Sentiment Survey which shows hotel investors’ sentiment for short–term performance ?defined as six-months? declined to a new low, reaching -57.5 percent in the Americas compared with previous sentiment of -52.5 percent following 9/11. Investors’ short-term sentiment for industry performance remains subdued as economic strain continues to weigh down hotel markets across the Americas.
“Our latest survey reaffirms that investors believe that operating fundamentals still have further to drop over the short term. While marking a decrease, investors’ short-term performance outlook has declined at a slower rate compared to our last survey. Investors also indicated a positive medium-term outlook for more than 60 percent of the markets tracked across the Americas, most notably for major gateway cities,” said Arthur Adler, managing director and CEO for Jones Lang LaSalle Hotels.
Washington, D.C. (-9.3 percent), Houston (-34.8 percent), and the Pacific Northwest (-38.1 percent) exhibit the least negative short-term sentiment in the United States.
In the medium-term, two-year performance outlook, investor sentiment has improved significantly for the first time since the second half of 2006, reaching 6.1 percent, a full five percentage point increase in positive sentiment. This move is indicative of the expectation that the low point in operating fundamentals is nearing and that investors anticipate a recovery in the medium term.
The medium-term outlook is by far the most positive for Washington, D.C. due to stronger government-related business (68.0 percent), followed by Boston (34.9 percent) and San Francisco (32.2 percent).
The largest shift in investor intentions was manifested by the six percentage point increase in buy sentiment, now at its highest level in two years. “The hotel transactions market, although stagnant now, is supported by a significant amount of capital that could become very active. Cities attracting the highest attention for acquisitions include San Francisco (49.3 percent), Boston (48.6 percent), San Diego (47.5 percent) and Los Angeles (47.4 percent),” said Thomas Fisher, managing director for Jones Lang LaSalle Hotels.
In the previous survey conducted six months ago, investors indicated a dominant hold strategy for almost all U.S. markets. With the buy sentiment picking up again, a reduced two-thirds of U.S. markets now exhibit an overlying hold sentiment.
“As hotel real estate continues to re-price through 2009, the sector will start to attract investment capital once again,” said Adler.
With the increased cost and decreased availability of debt, as well as greater perception of risk, leveraged IRR requirements rose by 160 basis points across the Americas.
“Additionally, markets in our survey notched an increase in expected cap rates (initial yields) for acquisitions, reaching 10.4 percent. This marks a 270 basis point increase from the record-low cap rates surveyed in late 2006,” said Fisher.
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