United States -  Minneapolis - St Paul

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The strong economic climate of the Minneapolis-St. Paul metro area has continued to attract attention of developers. Eighteen Fortune 500 companies are headquartered in the Twin Cities, representing a variety of industries, including consumer goods, finance, and insurance. Currently, the skyline is littered with construction cranes on numerous multi-unit residential projects and large-scale, mixed-use developments, including the Dayton's revitalization project, with 1.2 million square feet of office space available for lease in 2019, as well as the 37-story Gateway project, which will be anchored by RBC Wealth Management and the Four Seasons Hotel. The 2016 opening of U.S. Bank Stadium and the Wells Fargo towers has spurred additional development in the Mill District and Downtown East neighborhoods. Ongoing projects in these areas include but are not limited to the Ironclad development (Moxy hotel and apartments) and East End (apartments, Trader Joe’s, and Canopy by Hilton). The University of Minnesota and Minneapolis-St. Paul International Airport are also undergoing large expansion projects.

Large sporting events, such as the 2016 Ryder Cup at Hazeltine, Super Bowl LII in February 2018, and the NCAA Final Four in 2019, have helped the Twin Cities garner national attention; moreover, the Super Bowl generated a significant amount of lodging demand during a period of low occupancy for the market. Given the diversity of the local economy, Minneapolis-St. Paul is anticipated to continue to be a strong major metropolitan area, with moderate demand growth expected in the near future. In addition to major corporate headquarters, hotel demand sources include healthy convention traffic from the spring through the fall, as well as tourism related to sporting events, regional shopping, and theater productions. Despite the recent additions to supply, occupancy has remained relatively stable in the last several years given the strong base of diverse corporate demand. Resulting from supply additions and less-favorable group business, market-wide occupancy declined slightly to 67% in 2017, while the popularity of the Super Bowl during an off-peak season led to a record RevPAR level of nearly $83 in 2018. While occupancy in 2019 is anticipated to be somewhat flat, compared to the boom in 2018, fewer new hotels rooms should allow occupancy to remain relatively stable.

More than 2,500 new rooms opened in the metropolitan area between 2016 and 2018, and several major hotel projects are underway in 2019. Downtown Minneapolis hotels under construction include the Moxy by Marriott and the Element at Target Field, while in Downtown St. Paul, a SpringHill Suites by Marriott and the Celeste Hotel are under construction; additionally, the former Embassy Suites by Hilton in St. Paul is undergoing a conversion to a Drury Inn. The supply pipeline remains strong, as other hotel projects in both downtown areas, near the Mall of America, and within the surrounding suburbs are in the planning stages. Average rate will likely fall as the market corrects itself following the 2018 Super Bowl. The value of Twin Cities hotels is expected to remain stable given the rapid absorption of new supply and favorable market economic conditions.

Transaction activity remains strong in Minneapolis-St. Paul. Fifteen major sales (identified as $10 million and over) have occurred in the metro area since January 2017, totaling $422 million in transaction volume, including such assets as the Radisson Blu Downtown Minneapolis, the Embassy Suites by Hilton St. Paul, and the Grand Hotel Minneapolis. Strong investor interest continues for the Twin Cities, and existing owners continue to invest in their assets, as many of the Downtown Minneapolis and St. Paul properties have been recently renovated or are scheduled for renovation. In consideration of the transaction volume, new supply, and demand trends, we anticipate the value of Minneapolis-St. Paul hotels to remain fairly steady over the next two years.

* 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.

For the Latest Information and Analysis on the Impact of COVID-19Click Here

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For more information, please contact:

Tanya Pierson, MAI
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