CHICAGO—The U.S. hotel industry could lead the recovery of commercial real estate, buoyed by its first annual increase in demand since 2007, according to Jones Lang LaSalle.
“In the hotel sector, we think that the worst of the decline in hotel fundamentals are being experience in 2009,” said Josh Gelormini, director of capital markets research for the Americas. Gelormini was one of three JLL executives who reported on the company’s “U.S. National Economy and Property Market Outlook” during a webinar yesterday.
“As rebounds in leisure travel as well as business travel begin to slowly take shape in early 2010 and comparison become more favorable, that’s where we’ll see that increase in demand.”
Demand is expected to increase by 1.1 percent in 2010, which eventually will lead to compression in average daily rates. Revenue-per-available-room declines will decelerate greatly in 2010, though it’s still forecast to be down from 2009 levels as a whole. By mid-2010, however, the metric is expected to flatten out and record positive growth in year-over-year comparisons, according to the report.
“The latter part of 2010 will mark the start of a new lodging cycle, a period when the investment community will start to transition from the year of realization (2009) to the year of increasing opportunities,” according to the report.
Jones Lang LaSalle’s hotel division is expecting a significant increase in U.S. hotel transaction activity next year compared to 2009, and 2011 will bring further increased activity on a more robust scale, said Thomas Fisher, managing director for Jones Lang LaSalle Hotels, in an e-mail.
Select-service transactions less than US$5 million will be common because they can be financed by local and regional banks, while full-service transactions between US$10 million and US$40 million represent a sweet spot for equity-rich investors, Fisher said.
“Larger transactions in gateway markets will also be an area to watch as offshore capital and other intrinsic-value investors seek high-quality product at attractive discounts to replacement cost,” he said. “Assets with seller-backed financing will also provide for additional transaction volume in the next year and beyond.”
Gateway markets, such as Washington, D.C., New York, San Francisco, Los Angeles and Boston, likely will command more transaction attention first.
Active domestic buyers will include institutional capital, private and public real estate investment trusts, and private equity funds. New capital including public hotel REITs and new private investment funds with no legacy issues are being formed as well, Fisher said.
On the international front, active interest is percolating from both Asian and European groups, as they have benefitted greatly from counter-cyclical investments during the past 20 years as well as the favorable dollar exchange rate.
