In 2017, RevPAR in the Boston MSA lodging market grew by 1.8%, an improvement upon the 0.6% decrease recorded in 2016, but still 120 bps below the 3.0% growth recorded nationwide. The MSA covers a broad geographic area with highly variable economic contexts, and whereas trends in the Boston/Cambridge urban core were healthy and stable, the suburbs faced greater challenges, particularly with respect to absorbing new supply. Viewed broadly, the Boston area's occupancy rate has remained reliably strong in the post-recession era, peaking at 76% in 2015, and finishing 2017 just over 74%. In contrast, average rate growth has decelerated in each year since 2014, falling to only 1.7% in 2017. And yet, perception of the lodging market remains highly positive due to the luster of the urban core. Urban Boston/Cambridge is thriving and remains a prized location for hotel owners.
In the post-recession era, demand in the Boston MSA has generally grown in the range of 2%-3% per year, except for 2016, when a weak citywide convention calendar resulted in a static year. Demand (and citywide convention activity) rebounded in 2017, growing by 2.9%, paced by the strong performance of the MSA's urban core. As a magnet for relocating corporations and one of the fastest-growing commercial districts in the world, the Seaport District is the most obvious star of the show. But visitation is increasing throughout the area for a variety of other reasons, including Logan Airport's expanding international service. International visitation to the city grew by 5.3% in 2017, according to the CVB. The key drivers in all three major demand segments (commercial, group, and leisure) are all in good health and poised for continued growth.
Barriers to entry in Boston are real. Water borders, expensive and scarce land, and a lengthy permitting process have played a part in Boston's perennially strong occupancy rates by reducing new supply risk. Inventory was all but unchanged until 2015, when supply growth exceeded 1.0% for the first time since 2009. Since 2015, the rate of gain has rapidly accelerated, which reflects on the strength of the market's economics, whereby average rate levels grew to the extent necessary to support significant new hotel construction. New hotels opened in 2016 and 2017 were primarily focused on select-service products of modest size, situated in suburban and peripheral urban locations, as well as the burgeoning airport market. The supply growth outlook for 2018 calls for more of the same, i.e. growth in the 2%-3% range, mostly select-service, whereas the pipeline promises to yield some higher-profile projects in the near term, including a second Four Seasons in 2019 and (most likely) a new convention center headquarters hotel in 2021.
Boston is one of the most highly coveted hotel real estate markets in the world. In 2017, Boston's RevPAR finished fifth in the United States, between Miami (fourth) and Los Angeles (sixth), well ahead of other mature Northeastern metropolitan areas such as Washington, D.C. and Philadelphia. Boston is prized by institutional investors for its high barriers to entry and is perceived as an excellent bet, no matter the holding period. Transaction activity remained relatively consistent through 2017 and early 2018. Capitalization rates remain historically low, with stiff competition among buyers. The most recent high-profile transaction was reported in April 2018, in the form of the Taj. Including planned improvements, the cost basis will reportedly approach $1 million per room.
* Although the HVI cannot tell you what a particular hotel is worth, it does provide excellent “big picture” data, indicating which market areas are experiencing positive trends, and thus may present good investment opportunities. The HVI for the U.S. is a measure of the strength of the lodging industry as a whole and, specifically, the hospitality investment market. The HVI for the various identified markets can provide a basis to evaluate and compare different geographic regions. For more insight on the limitations and applicability of the HVI, please read the message on the HVI home page by clicking on the graphic at the top of this page.