U.S. hotel values remained relatively stable as RevPAR increased 2.9% in 2017 and capitalization rates rose modestly. This trend reflects the market overall and should not be interpreted as indicative of an individual asset’s change in value; factors affecting specific markets and assets may result in more significant value gains or declines. The RevPAR increase was driven by a 2.1% increase in ADR, down from 3.1% in 2016, and a 0.5 point uptick in occupancy. Supply increased by 1.8%, the strongest level since 2009, but was outpaced by demand, which rose by a healthy 2.7%. This was the highest rate of demand growth since 2014, reflecting a strengthening economy. Operating expenses continued to rise, but were offset by RevPAR gains, resulting in positive NOI trends. Cap rates rose by approximately 25 bps across all sectors, but declined modestly for high barrier to entry assets. Markets facing new supply saw a somewhat higher increase in return requirements. As of second-quarter 2018, when the HVI for this year was developed, transaction activity in the U.S. has increased by 5% year-over-year, reflecting renewed interest in the lodging sector. While two months do not necessarily indicate a sustained trend, market participants with whom we spoke reported that the market is picking up after muted activity in 2016 and 2017. Despite three Federal Fund rate hikes totaling 75 bps in 2017, debt financing is still readily available at favorable interest rates, fueled by active CMBS lending and the formation of numerous debt funds with aggressive pricing.  While the Fed raised rates another 25 bps in March 2018, competition amongst lenders has resulted in reduced spreads, which has helped to stabilize interest rates.   With two more rate hikes anticipated this year, and spreads unlikely to contract further, the cost of debt is expected to increase. Offsetting this trend, the outlook for improved hotel performance should reduce equity spreads, mitigating the upward pressure on cap rates. Overall, the outlook for 2018 is for continued stability in hotel values. 

The Tax Cut and Jobs Act, passed in December 2017, has driven up the stock market and put more discretionary income into the hands of  both corporations and consumers, an economic stimulus that is buoying lodging demand across all segments. The GDP rose by 2.3% in 2017, up from 1.7% in 2016, and is projected by economists to rise by 2.5% to 3.0% in 2018, which should continue to support continued strong demand growth.  With supply projected to increase by 2.0% in 2018, occupancy is expected to increase to over 66%, a level not seen since STR started reporting hotel performance metrics in 1988.  ADR growth is expected to accelerate to 2.5% given the favorable supply/demand equation.  These forecasts presume that no trade wars with the U.S. will ensue and that no unforeseen geopolitical events will impact the health of the global economy. In summary, continued revenue and NOI growth should be adequate to offset modestly increasing capitalization rates enabling hotel values to hold steady over the foreseeable future.

* 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.

Change In Value For Market:

Legend
Significant Value Increase: Greater than +10%
Moderate Value Increase: Between +3% and +10%
Stable Values: Between -3% and +3%
Moderate Value Decline: Between -3% and -10%
Significant Value Decline: Less than -10%

United States RevPAR Change

United States RevPAR

Year RevPAR
2007 65.54
2008 64.24
2009 53.55
2010 56.44
2011 61.02
2012 65.06
2013 68.53
2014 74.20
2015 78.63
2016 81.18
2017 83.55
2018 (f) 86.06
2019 (f) 88.04
2020 (f) 90.02

For more information, please contact:

Stephen Rushmore, Jr., MAI, FRICS
[email protected]
  • +1 617 868-6840 (m)
Suzanne Mellen, MAI, CRE, FRICS, ISHC
[email protected]
  • +1 415 268-0351 (w)
  • +1 415 896-0868 (w)
Anne Lloyd-Jones, CRE
[email protected]
  • +1 516 248-8828 (w)