Overview:

The HVI is an index, a statistical concept reflecting a measure of the difference in the magnitude of a group of related variables from those in a base period. As such, it is a measure of broad market trends 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 a big picture of hotel value trends and, as such, provides industry participants a tool for evaluating opportunities and timing the entry and exit of their hotel investments. The HVI for the U.S. is a measure of value trends for the nation’s lodging industry as a whole, while the HVI for the various identified metro markets provides a basis to evaluate and compare hotel value trends in different metropolitan areas.

The 2016 U.S. HVI reflects expectations of modest overall value appreciation for the nation at large by the end of the year. As of early 2016, when the HVI for this year was developed, transaction activity in the U.S. had slowed considerably due to concerns about slowing economic growth and new supply. Lenders became more stringent in their loan underwriting, and many investors withdrew from the hotel sector, seeking alternative investments with potential for higher yields. Hotels release rooms daily, continually marking their room rates to market. This attribute makes them highly popular when the economy is on an improving trend and less popular than other forms of commercial real estate when economic uncertainty or decline sets in. The rule of thumb that a hotel’s NOI increases or decreases by twice the rate of RevPAR growth makes a very compelling investment story when supply and demand dynamics are favorable. Hotel values began to recover in 2010 and have been on a positive trend over the past five years; transaction activity reached its peak for this cycle in 2015. As of early 2016, the concern that RevPAR growth was beginning to slow substantially while operating costs were continuing to rise, coupled with the prospect for new competitive supply and a more restrictive lending environment, reduced investor interest in hotel assets. Hotel investment activity runs very hot when the economy is on an upswing, and cold when economic growth starts to wain or decline. Once the end of an upcycle begins, it is typically three years before hotels again become a favored investment. Based on trends in evidence at the beginning of 2016, which include flattening NOI growth and rising capitalization rates, HVS has forecast a modest 1% increase for overall U.S. hotel values for the year. While no one can predict when the next economic downturn will occur or the extent to which the economy will contract, the consensus is that it will be a "soft landing," resulting in a modest decline in economic growth. Based on our review of historical economic trends, HVS has forecast a strong value recovery commencing in 2019. Hotel value trends are highly correlated with economic growth, and this prediction may change over the course of the year as the various factors affecting hotel performance and investment unfold.

Valuation Trends and Predictions:

United States
Previous Year +1% (49 of 71)
Growth in 2017 +2% (36 of 71)
Growth in next 4 years +12% (32 of 71)

Exchange Rate:

Exchange Rate 2014 Exchange Rate 2015 Change 2014/2015 Exchange Rate 2016 Change 2015/2016
US$ 1 1 1
United States 1 1 0.0% 1 0.0%

Change In Value For Market:

United States RevPar % Change

For more information, please contact:

Stephen Rushmore, Jr., MAI, CRE, FRICS
srushmorejr@hvs.com
  • +1 617 868-6840 (m)