United States -  Philadelphia

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The area's many colleges and universities make Philadelphia a top international study destination, as the city has evolved into an educational and economic hub. The University of Pennsylvania is home to a diverse full-time undergraduate student body of over 10,000 from every state and around the globe. Admissions are among the most selective in the country, and Penn consistently ranks among the top ten universities in the annual U.S. News & World Report survey. Several buildings and expansions have been constructed at the University of Pennsylvania over the last several years; the most recent development is the Wharton Academic Research Building, a 74,400-square-foot facility for the Wharton MBA Program. The project began construction in the summer of 2018 with an expected completion in the fall of 2020. Other higher-education institutions include Drexel University, Philadelphia University of the Sciences, and Philadelphia College of Osteopathic Medicine. The healthcare sector is also important to the area. The 21-story Roberts Center for Pediatric Research was completed in May 2017 on the new nine-acre campus for the Children's Hospital of Philadelphia (CHOP). As part of CHOP's long-term strategy, an additional three towers are expected to be constructed on the campus; however, a timeline has yet to be determined. Despite the continued entrance of new supply, regional lodging trends for 2018 illustrate strengthening occupancy and average rate (ADR), with growth largely triggered by record increases in international tourism, citywide convention activity, and two NFL playoff games being held in the city.

Demand in the Philadelphia market is generated by the multitude of national employers, including Comcast, Independence Blue Cross, Jefferson Health System, and the University of Pennsylvania, as well as numerous law firms. The Comcast Innovation and Technology Center opened in Downtown Philadelphia in 2018. The new facility offers 1.5 million square feet of office space, three television studios, and a retail mall; a 219-unit Four Seasons hotel is slated to open at the complex in the summer of 2019. Furthermore, the Pennsylvania Convention Center stimulates a significant amount of demand for Greater Philadelphia hotels throughout the year. According to the PHLCVB, the convention center hosted 18 citywide events in 2018, representing a peak for the last decade; conventions combined with overseas visitation brought nearly 1.3 million overnight visitors to Philadelphia. Additional increases should occur through the stabilized year, as large events continue to fill the books in the coming years. In 2018, the PHLCVB booked 607 future events, which is expected to generate nearly 830,000 room nights for the area. In particular, the sales team secured the Natural Products Expo East for several years beginning in 2020; this contract alone is expected to generate roughly 25,000 room nights annually for the area. In terms of occupancy, while regional performance indicates a peak at above 71%, Center City hotels achieved an occupancy of 79.6%. We anticipate demand levels to remain strong in light of strengthening economic conditions, particularly from convention/group, tourism, and commercial activity; however, the entrance of nearly 2,700 rooms into the region through early 2020 is expected to cause occupancy to remain generally stable in the near term, followed by a slight downtick as the new supply continues to be absorbed.

In recent years, hotel supply growth has remained modest, with a more noticeable increase registered in 2017 before growing less rapidly at around 2.0% in 2018. Many of the proposed hotel projects slated for the greater Philadelphia market appear to be appropriately located in areas primed for further demand growth. Based on our research, while occupancy is expected to remain generally stable in the near-to-mid term, the new high-rated supply should help drive positive RevPAR for the region, albeit more slowly than in recent years. Overall, the entrance of new supply should remain in relative equilibrium with the anticipated growth of demand.

The pace of local transactions remained somewhat limited in 2018, with a total of twelve transactions in the region in a continuation of the trend from recent years, as most property owners in the region have taken a buy/build-and-hold approach. There were a total of five transactions within Philadelphia for 2018; highlights include the Kimpton Monaco for $124 million ($463,000 per key) and the Embassy Suites Center City for roughly $103 million ($359,000 per key). Transaction activity during the first quarter of 2019 decreased slightly, compared to the same period last year, with two hotels selling for a total of over $128 million.

* 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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