United States -  Boston

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In 2018, RevPAR in the Boston/Cambridge lodging market grew by 3.7%, an improvement from the 1.8% increase recorded in 2017 and above the 2.9% growth recorded nationwide. Trends in the Boston/Cambridge urban core have generally been healthy and stable. Viewed broadly, the Boston/Cambridge occupancy level has remained reliably strong in the post-recession era, peaking at 76% in 2015 before dipping slightly and hovering around the 74% mark in 2016 and 2017; occupancy nearly returned to its peak again in 2018, finishing close to 76%. In contrast, although average rate (ADR) growth continued, it has largely decelerated each year since 2014, falling to only 1.6% in 2018. Nevertheless, perception of the lodging market remains highly positive because of the luster of the urban core. As of the first quarter of 2019, the urban Boston/Cambridge market is thriving and remains a prized location for hotel owners.

Demand in the Boston MSA generally grew around 3% per year from 2013 through 2017, with the exception of 2016, when a weak citywide convention calendar resulted in stability. In 2018, demand achieved strong growth of 6.2%, outpacing the rate of change in new supply, which registered a 3.5% increase. As a magnet for relocating corporations and one of the fastest-growing commercial districts in the world, the Seaport District is the area's strongest submarket. However, visitation is increasing throughout the area for a variety of other reasons, including Logan Airport's expanding international service. The key drivers in all three major demand segments (commercial, group, and leisure) are all strong and poised for continued growth.

Boston is subject to high barriers to entry. Water borders, expensive and scarce land, and a lengthy permitting process have played a part in Boston's perennially strong occupancy levels by reducing new supply risk. Inventory was all but unchanged until 2015, when supply growth exceeded 1.0% for the first time since 2009. However, since 2015, the rate of gain has rapidly accelerated, which reflects the strength of the market's economics, and ADR levels have grown to the extent necessary to support significant new hotel construction. New hotels that opened in 2017 and 2018 primarily comprise select-service products of modest size, situated in suburban and peripheral urban locations, as well as the growing airport market. The supply outlook for 2019 consists of growth within the 4% to 5% range, including higher-profile projects such as a second Four Seasons Dalton Street in 2019, the 671-room Encore Boston Harbor resort and casino in Everett, and a potential new convention-center headquarters hotel in 2021. Other notable anticipated or recent openings in Boston for 2019 include a Hyatt Centric near Faneuil Hall, a Moxy Hotel in the Theater District, and a citizenM Hotel by North Station.

Boston remains one of the most highly coveted hotel real estate markets in the world. In 2018, Boston's RevPAR finished seventh in the United States, down from fifth in 2017, between San Francisco (sixth) and Miami (eighth). 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 2018 and early 2019. Capitalization rates remain historically low, with stiff competition among buyers. Notable recent transactions include Claremont Companies' acquisition of the 120-room Residence Inn by Marriott Boston Downtown Seaport from Norwich Partners LLC for $77 million ($641,667 per room) in August 2018, as well as the sale of the Taj Boston for $203 million (approximately $744,000 per room) in April 2018. The 273-room Taj Boston was acquired from New England Development by a joint venture between ICONIQ Capital and Highgate Hotels. An $86-million renovation and rooms expansion is planned for the Taj Boston, bringing the total cost basis up to $291 million. Based on the expected new room count, the per-room cost basis (including both acquisition and renovation) will total approximately $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.

The widespread impact of the coronavirus (COVID-19) has had an unprecedented impact on hotels and hotel values worldwide. Consequently, the latest HVI analysis may no longer reflect the most current measure of lodging industry strength or the hospitality investment market.

In each of our offices across the globe, we are working tirelessly to analyze the impact of recent events and provide timely insights to help you navigate these uncharted waters. Because it is unclear how long the pandemic will last or how long related restrictions will be in place, we are updating our analyses on a weekly basis using the most current data.

Additionally, examination of value trends in prior cycles can provide useful information. Historical patterns, together with an understanding of the market’s current expectations for the eventual recovery of the industry and its performance, can provide insights on the likely trajectory of decline and recovery for hotel values.

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