Transaction trends, market performance and valuations highlighted this year’s HVS Hotel Market Connections events around the world.
GLOBAL REPORT—HVS hosted its fifth annual Hotel Market Connections events in 10 cities around the world on 16 June, highlighting market performance, transaction trends and valuation snapshots in those locations.
Click on the cities below to jump to each market snapshot:
More than 6,500 new hotel rooms are proposed across greater Atlanta, with most concentrated in the downtown and airport submarkets. Additionally, occupancy in the perimeter center submarket has been on the rise, despite the recent openings of the Hyatt Regency and Le Méridien.
Proposed supply along the I-85 Corridor includes new Marriott and Embassy Suites hotels, both proximate to the convention center, which should help the market with group bookings. The new supply is expected to be quickly absorbed given the amount of unaccommodated demand in Atlanta.
Most of the market’s major demand generators are located downtown, which will soon be home to Mercedes-Benz Stadium, set to open in the spring of 2017. Furthermore, the proposed Georgia World Congress Center Hotel is anticipated to bring in additional meeting and group demand to the downtown submarket, which has realized a number of new hotel openings in recent months.
New supply in the airport submarket will come mainly in the form of 4-star hotels, a segment that has historically been without a strong presence here. The higher-tier hotels might temper occupancy gains in the short term but are expected to command higher rates, supporting strong rate gains for the airport submarket overall.
On the transactions front, the Hilton Atlanta sold in October 2015 for $174.5 million ($140,499 per room) and was the highest-priced transaction of the year. The W Atlanta Downtown and the Renaissance Concourse Atlanta also sold in 2015.
Atlanta’s year-over-year hotel values, on average, rose more than 15% in 2012 and 2013. Value growth stood at 6.6% last year. Hotel values are expected to continue to grow, though at a slower pace, through 2019.
According to HVS research, more than 8,360 new hotel rooms are in the pipeline for Greater Chicago, with most to be concentrated in the central business district. The Chicago market is dominated by upper-upscale hotel product, a reflection of the city’s healthy convention industry. The largest increase in supply will be in the underserved upper-midscale segment. Many of the proposed “lifestyle” hotels will target the elusive $300-range price point, a space in which few hotels in the market operate.
The greater Chicago hotel market spans more than 114,000 rooms. Despite lower compression from downtown, the city’s suburban markets should still realize strong growth with limited new supply. Revenue per available room for Chicago hotels ranged from $100 to $200 and averaged $142 in 2015.
With the city having run short of funds, many local hotel owners are concerned about a rise in property taxes. HVS found that the 2015 assessed values of a mix of luxury, upscale and upper-midscale properties in Downtown Chicago had risen, on average, 40% from the year before. Of the hotel owners who appealed the assessment, however, nearly 90% succeeded, and the resultant year-over-year increase in assessed value was closer to 21%.
To put this in terms of dollars and cents, at an 8.5% cap rate, the difference between a 40% and 21% value increase equates to more than $40,000 in value per key, or approximately $11 million overall, for a 250-room hotel. This dwarfs the costs associated with an appeal.
One of the innovations in Chicago has been in “rooftop” amenities, including food-and-beverage and entertainment options that bring in additional revenue. Rooftops provide an attractive use of outdoor space, appealing especially to the millennial travel set with nightclubs, ice bars and rooftop recreation.
Among the originators are the J Parker at The Lincoln Hotel (2012), Roof at the Wit (2012), and IO at The Godfrey (2014). Seven more have opened since 2015, including Raised at the Renaissance, Aire at the Hyatt Centric and Cerise at the Virgin Hotel. The proposed Kimpton Gray Lola Braza, the proposed Conrad at the Noyane Hotel and the proposed Navy Pier Hotel will add to Chicago’s stock of 19 hotel rooftop venues over the next several years.
The greater Denver hotel market can expect just over 6,500 new hotel rooms between now and 2019, according to the most recent account of the new supply pipeline. More than 2,000 are scheduled to arrive this year alone, and many of these will belong to independent versus branded properties.
The 112-room Crawford Hotel, built in the renovated Denver Union Station, opened in 2014. Denver’s River North Art District, better known as RiNo, has a number of new developments and infrastructure improvements underway, including an expansion of the city’s light rail, to which the Crawford connects. The pipeline includes several more boutique hotels, such as the Rollnick Hotel in Cherry Creek North, The Source in RiNo, The Maven in LoDo (as part of the redevelopment of the historic Windsor Dairy Block) and the Halcyon in Cherry Creek North.
The area’s most prominent hospitality endeavor is the Gaylord Rockies Resort & Convention Center, located in the suburb of Aurora, near Denver International Airport. Construction began earlier this year, and the resort is scheduled to open in late 2018. The scale is certainly grand: 1,500 rooms, 100 suites and 485,000 square feet of meeting space will make the resort attractive for meetings and groups, helping the greater market secure additional convention demand.
With the influx of new rooms, available roomnights in Denver are expected to trend upward over the next few years. Occupied roomnights should increase as well, though at a more moderate pace. Average occupancy in the market is forecast to decline from 75.7% in 2015 to 72.6% in 2019. Average rate, however, is forecast to climb to $130.65 over the next three years, up from $120.81 in 2015.
The Sheraton Denver sold in December 2015 for $210 million, or $170,593 per room, the highest-priced hotel sale confirmed for 2015 in the market. The Denver hotel transactions market has been active thus far in 2016, with 21 sales totaling $242,616,883 recorded through April.
Ontario, the home of more than 30% of the Canada’s guestroom supply, will remain the engine for Eastern Canada's hotel industry in 2016. Given the manufacturing sector's prominence in the provincial economy, the lower Canadian dollar is inducing a substantial increase in manufacturing exports, contributing to stronger gross-domestic-product growth. With the weak dollar, Canadians are showing a propensity for staying within Canada for their vacations, and there has been a marked increase in visitor numbers for the major markets in Ontario.
The Downtown Toronto hotel market is riding the wave of the upsurge in the Ontario economy. The market is seeing a steady rise in demand, while room supply is poised for a 482-room reduction in 2016. RevPAR was up 16.9% through April, thanks in part to the NBA All-Star Game in February. A modest amount of new supply will open in 2017 with the Hotel X and the Loews Bisha Hotel. Given the overall pace of growth, the market is expected to readily absorb these new rooms.
Quebec, which is just shy of having 20% of the country's hotel inventory, is likewise seeing growth in its manufacturing and tourism sectors with the low loonie—the province witnessed stronger RevPAR growth than Ontario in both 2014 and 2015. Downtown Montreal has seen a reduction in guestroom inventory from the repurposing of some older stock, which has contributed to this growth. In 2016, another 1,000 rooms will be offline for a year while the Fairmont Queen Elizabeth undergoes a $75-million renovation.
With low oil prices putting the Newfoundland economy through the wringer, hotel demand in the province was down year-to-date April 2016. At the same time, Newfoundland is seeing moderate supply growth from the hotel projects that were initiated when the economy was strong. By 2018, however, demand growth is projected to outpace the increases in supply.
Kevin Goldstein of HVS Energy and Sustainability provided an overview of energy efficiency opportunities for Canadian hotels. HVS contends that the utility line item for most hotels can be reduced by 5% to 25% through both operating enhancements and targeted investment into building equipment.
In 2015, some €25 billion was spent on hotel real estate across Europe, compared with €14.4 billion in 2014. Global hotel transaction volume rose by 61% to €73 billion. In the United Kingdom, hotels represented the fastest-growing category of property investment, rising 40% between 2013 and 2015. Non-hotel property investment was up by 26%.
RevPAR growth in the U.K., and in particular London, has begun to slow. Demand for hotel property in London is still outpacing supply. London remains second in the top five most popular cities for hotel investors after New York, followed by Los Angeles, Hong Kong and Paris.
While 43% of institutions and private equity companies investing in European hotels are based in Europe, the strongest investment growth stems from Asia. Between 2007 and 2015, investment from Asia rose by a massive 1,262%. Investors from China, Singapore, Thailand and Hong Kong have emerged as the fastest-growing, pushing total Asian investment in European hotel property up from €1 billion (Jan 2012 to June 2013) to €3.2 billion (Jan 2015 to June 2016).
Issues of economic uncertainty, terrorism, the forthcoming U.S. presidential election, and the Brexit vote have prompted a 60% decline in global hotel investment volume in the first quarter of 2016. This year is expected to end with around €11 billion worth of investment, compared with €25.8 billion in 2015.
The value trend for hotel property in Europe is on the rise, whereas in the first quarter of 2016 North America’s hotel market experienced a 5%-to-8% decline. RevPAR continues to decline in the major markets of North America, while Europe is seeing positive trends but remains uncertain about what comes next.
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Manhattan’s hotel market boasts some of the most powerful—and most stable—demand generators among metropolitan markets worldwide. Occupancy has held above 85% since midyear 2012, finishing 2015 at 87.2%. Demand growth in the market has been in positive territory since 2009, and tourism numbers are expected to near 60 million in 2016.
The rise in demand has brought about an unprecedented number of proposed hotels. Demand growth exceeded supply growth from 2010 through 2014. Last year, however, Manhattan’s hotel supply grew 2.6%, outpacing the 1.8% growth in demand. The record pace of supply growth in the market is expected to continue through 2018. Most of the new hotels in 2016 and 2018 are full-service properties, while select-service hotels form the majority for 2017. All of the proposed hotels are concentrated in Midtown and Lower Manhattan.
Fifteen hotels have transacted over the past 22 months, at cap rates ranging from 1.5% to 7.4%. The relatively low cap rates reflect the low cost of capital and long-term investment stability for Manhattan hotels. The biggest transaction in the market over the past two years was the New York Palace hotel, which sold for $886 million.
Looking forward, HVS expects occupancy to outpace supply, remaining in the mid-to-upper 80% range through 2018. Average rate increases have been a challenge this year for hoteliers, though marketwide average rate growth in Manhattan should rebound in 2017, providing a slight boost to RevPAR next year. Hotel values in greater New York City fell slightly in 2015, a trend expected to continue this year and next. HVS forecasts a minimal rise in values in 2018 and 2019, corresponding with a rise in RevPAR.
Now in the early planning stages, the Ernest N. Morial Convention Center Hotel will add 1,200 first-class rooms to Downtown New Orleans in 2019. The headquarters hotel is the largest project in the pipeline of proposed hotels, which will bring approximately 5,888 new rooms to the market by the end of the decade. Altogether, Greater New Orleans should have over 15 million roomnights available per year by 2019.
The pipeline includes several boutique/lifestyle properties, including the Pontchartrain Hotel (2016), the Hotel Loren (2017) and the Virgin Hotel (2019), which will be located in Uptown, Mid-City, and the Warehouse District, respectively. The opening of the 234-room Ace Hotel earlier this year, in addition to other proposed lifestyle hotels such as the Moxy by Marriott, signals the strength of New Orleans’ appeal to millennials, a crucial demographic. Moreover, new upscale brands, such as the AC Hotel by Marriott and the upcoming Canopy, along with high-profile boutiques such as the Old No 77 and the Hotel Queen & Crescent, are expected to support average rate increases in New Orleans.
The most substantial shift in the market is upward in the tiers. The availability of upscale rooms in New Orleans, for example, will grow from 20% of total market supply in 2015 to 26% by 2019, according to HVS New Orleans Managing Director Adam Lair. At least five new luxury hotels, including the second Virgin Hotel in the U.S., are anticipated to open by 2020.
Although 2016 started off relatively slow, HVS forecasts continued occupancy increases for the New Orleans hotel market, supported by the rising levels of demand and the high-rated proposed hotels on track to absorb it. Both occupancy and average rates should recover by year-end 2016 given the anticipation of strong group demand during the summer and fall seasons and in consideration of the expansions at the airport and Bio District. Tercentennial celebrations and a strong convention year in 2018, coupled with the openings of the convention center hotel, the World War II hotel and the Four Seasons by the end of the decade will further aid the city’s average rates and demand draw and capture.
More than 4,100 rooms are in the pipeline for Portland, Oregon. New supply additions in 2016 include the Hyatt House in the RiverPlace District, scheduled to open in July; the 120-room Hi-Lo Hotel, a Marriott Autograph Collection property near the Waterfront that is set to open in August; and the AC Hotel by Marriott, which is under construction in Downtown Portland. Two hotels, the Residence Inn by Marriott and the Holiday Inn Express, will open by the end of the year in Hillsboro, just west of Portland.
Portland has a relatively large percentage of luxury hotel rooms, approximately double the national average in terms of overall room count. The number of upper-midscale and economy rooms in Portland, by contrast, falls well below the national average. While the pipeline will bring a sharp rise in upscale rooms, luxury hotel development seems to have tapered off.
Occupancy for the market is expected to decline modestly (from 74.9% in 2015 to a projected 72.9% in 2019) in the wake of the new supply. Average rates, however, are forecast to rise, bringing a projected marketwide RevPAR of $107.78 in 2019, up from $94.68 in 2015.
Six hotels have transacted so far this year, totaling $135.4 million. The top transaction was the Hotel Monaco Portland, which sold in March for $114 million ($515,837 per room). The highest-priced hotel sale in 2015 was the Hilton Portland and Executive Towers, which sold for $275 million ($351,662 per room). This reflects the upward trend for hotel values in Portland, which peaked in 2015. HVS expects values to stabilize over the next two years, with the next upswing forecast for 2019.
British Columbia is undoubtedly the shining star of the hotel industry in Canada in 2016. Because of the province’s heavy reliance on the tourism sector, the lower Canadian dollar is increasing the number of U.S. visitors to the province’s major markets and creating a propensity for Canadians to stay within Canada at many of B.C.’s desirable tourist destinations.
Hotels in British Columbia have seen occupancy, ADR and RevPAR consistently grow each year since 2012. British Columbia is on track to continue this trend for 2016 with substantial growth in ADR and RevPAR.
Metro Vancouver is leading the charge with these trends and is continuing to see a steady rise in tourism, with growth being recognized by hotels, airports, convention centers and cruise ships. For the first quarter, total visitation in Metro Vancouver was up 9.4% compared to the first quarter of 2015. Supply growth has been limited in the region in recent years and while there is growth anticipated with the opening of the Trump Hotel in 2016, an Autograph Collection and JW Marriott Hotel in downtown Vancouver in 2017, and an Autograph Collection Hotel in 2017 at Surrey Civic Centre, the overall pace of growth is expected to be readily absorbed into the market.
With low oil prices, Alberta hotels are continuing to see a decline in the number of travelers. With the exception of Banff, all the major hotel markets in Alberta have seen occupancy, ADR and RevPAR fall dramatically in 2015 and a continuation of the trend in 2016. The falling occupancy has not only been driven by the declining demand, but an opening of new hotels that started construction prior to the collapse of oil prices. Hotel operators also are discounting rates in an attempt to maintain market share.
The bright spot, however, is Banff. Unlike other areas in Alberta, Banff has seen strong growth in the key metrics both in 2015 and through the first part of 2016. This growth is due to the weak Canadian dollar, which has resulted in more Canadians staying north of the border and more Americans traveling to Canada. The Banff market also is seeing strong growth in the number of Chinese travelers to the area.
Although not as affected as Alberta, Saskatchewan is seeing the negative effects of low commodity prices. As a result occupancy, ADR and RevPAR have all fallen this past year and are down year-to-date April figures. Similar to Alberta, Saskatchewan is experiencing strong supply growth combined with demand declines, and hotel operators are responding by discounting rates.