United States -  Memphis

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The greater Memphis area continues to experience economic strength, led by expansion in the healthcare, logistics, and tourism fields. Like many other metro areas, the focus of development and economic activity has shifted from the suburbs to the downtown area in recent years. The local hotel market has followed suit, with trends of supply and demand growth focused on the downtown submarket. Overall, market RevPAR remained stable in 2018 following multiple years of steady growth. Looking forward, we anticipate a trend of relative stability, as current market dynamics are expected to continue in the near term.

Memphis continues to serve as a major logistics hub, with superior access to rail, river, highway, and airport cargo infrastructure. The ongoing expansion of St. Jude's and the relocation of corporate offices to Downtown Memphis, as well as numerous residential and mixed-use projects planned for downtown and surrounding neighborhoods, are expected to support sustained commercial demand growth in the near term. Additionally, two new Amazon distribution centers and a $1-billion modernization of FedEx's Memphis hub should support commercial demand growth in suburban markets to the southeast. Meanwhile, a $175-million renovation of the Memphis Cook Convention Center began in early 2019 and is expected to wrap up by the fall of 2020. The modernized facility, combined with a tentatively planned new convention hotel, should draw additional meeting and group demand to the market in coming years. Moreover, tourists continue to flock to Memphis for its rich musical heritage and award-winning barbecue. The 2017 opening of Elvis Presley's Memphis at Graceland Campus has drawn a host of new visitors to the market, and an expansion of the attraction is currently being planned.

Despite the positive demand trends, occupancy levels dipped slightly in 2018, as supply increases outpaced demand growth. This trend caused ADR growth to decelerate to a level below inflation. A similar trend is expected in the near term, as substantial supply increases will lead to a further occupancy correction and minimal ADR growth. In 2018, supply levels increased approximately 1.5%, with the new hotels distributed among suburban submarkets, as well as Downtown. Looking forward, supply growth is anticipated to exceed 2% in 2019 and 2020, with numerous projects planned for Downtown. Thereafter, the potential addition of a 500-room Loews Hotel would support stronger bookings at the renovated convention center.

Transaction activity in Memphis increased in 2018 over the same period in 2017, although activity remained relatively modest, with a total of only twelve transactions in the greater MSA. Most notably, three Hilton-branded hotels sold in Downtown during the first half of 2018. The 405-room Hilton Memphis was acquired for $76,543 per room in January 2018, the 144-room Hampton Inn & Suites by Hilton Memphis Beale Street sold in February 2018 as part of a portfolio, and the 280-room DoubleTree Suites by Hilton Memphis Downtown transacted at $139,107 per room in April 2018. While investor interest continues to be strong, some market participants are waiting to see how the market absorbs the significant amount of new supply in the pipeline. Memphis is considered a revitalizing secondary market that presents strong opportunities for investors seeking higher yields.

* 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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Daniel McCoy, MAI
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