United States -  Phoenix

Overview:

While the metropolitan Phoenix lodging market has been late out of the gate this cycle, market performance heated up in 2015 as the region hosted Super Bowl XLIX, propelling market performance to levels not realized since 2008. Hotel sales followed suit in 2015 as total transaction volume totaled nearly $970 million, highlighted by the Phoenician Resort ($400,000,000 or $622,084 per key) and JW Marriott Desert Ridge Resort ($265,760,669 or $279,748 per key) transactions. The region’s unique position as a recovering Top 25 market will continue to push performance metrics in 2016, despite the expected demand correction related to last year’s Super Bowl, as operators seek to return to pre-recession levels achieved in 2007. Aside from one-time Super Bowl demand, the region’s strong performance has been positively affected by increases in both convention and in-house group demand. Group-related demand is critical for the area’s resorts and downtown hotels, allowing those operators to drive stronger performance, which in turn allows the rest of the market to rise along with it. This dynamic in the Phoenix market cannot be understated, and the expectation of continued growth in the group segment should assist the market’s continued upward trajectory in the near term.

As market performance continues to strengthen, some the area’s more robust submarkets will continue to experience an influx of new supply. Tempe, specifically Downtown Tempe near Arizona State University, has been garnering the most attention lately, as the combination of higher education and a walkable downtown have been the catalyst for unprecedented growth. The Price Corridor in Chandler remains a strong market with an ever expanding employment base, while the nearby community of Gilbert continues to realize vigorous growth given its proximity to Chandler and available land. New supply in Scottsdale is largely being contemplated for land on the nearby Salt River Pima-Maricopa Indian Community, just east of the city’s border. Two resort developments are underway in nearby Paradise Valley, including the development of a Ritz-Carlton, which is a positive sign for the overall health of the lodging market in Phoenix. Meanwhile, a combination of improved convention demand and increased transient business from higher-education institutions and research entities is expected to support new supply growth in Downtown Phoenix. Lastly, the West Valley region of metropolitan Phoenix, including the suburbs of Glendale, Peoria, Avondale, and Goodyear, continues to experience a slower recovery. While growth in the broader lodging market should help boost trends in the West Valley in 2016, the lack of new demand generators is likely temper supply growth.

The greater Phoenix hotel market and hotel values are forecast to maintain their upward trajectory in 2016 as the market seeks to return to pre-recession levels. In 2017 and 2018, the expected influx of new supply will temporarily curb market performance and the corresponding hotel values. Nonetheless, anticipated longer-term improvements in meeting and group demand and the continued diversification of the local economy should support future growth.

* The HVI is an index, a statistical concept reflecting a measure of the difference in the magnitude of a group of related variables compared with a base period. As such, it is a measure of broad market trends, rather than a conclusion as to the specific value of any asset, and cannot be applied to an individual asset. A good comparison is the Consumer Price Index. While this index provides a reliable measure of the overall rate of inflation in a region, it does not indicate how the price of milk has changed at your grocery store. So how can the HVI be of use to an individual investor? 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.

Valuation Trends and Predictions:

Phoenix United States
Previous Year +5% (9 of 71) +1% (49 of 71)
Growth in 2017 0% (56 of 71) +2% (36 of 71)
Growth in next 4 years +14% (21 of 71) +12% (32 of 71)

Change In Value For Market:

Phoenix RevPar % Change

For more information, please contact:

Ryan Wall
rwall@hvs.com
  • +1 608 658-0587 (w)