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HVS In-Depth United States Hotel Valuation Index:
Washington, D.C. holds a worldwide reputation as a cosmopolitan city rich in museums, monuments, and culture, bustling with political power. As the nation’s hub of political affairs, the city is the center of governmental action and policy in the U.S. The Washington metropolitan area also boasts a diverse concentration of national and international organizations and associations, as well as a number of major universities, educational agencies, and healthcare institutions. The Washington, D.C. market's occupancy and average rate (ADR) levels have risen over the past several years; the collection of corporate, government, and educational institutions continues to support an economy that is relatively resilient to major downturns on a national level.
The Washington, D.C. area's major driver of room-night demand remains the federal government; however, tourism continues to be a strong component of demand for area hotels. The volume of travel related to government activity, complemented by steady tourism demand, pushed occupancies most recently into the 70s; however, this market has been able to sustain occupancy levels in the mid-60s even during its slowest years and the nation's economic downturns. ADR growth among midscale to upscale hotels is largely tied to the federal per-diem rate, which is set annually. Occupancy and ADR illustrated strong growth trends in 2017, as the convention activity remained healthy and the Presidential Inauguration and Women's March created a significant amount of compression. RevPAR corrected itself in 2018 from the inflated performance of 2017 given the lack of these major events. We forecast occupancy and ADR growth to be limited in 2019, due primarily to a softer convention calendar and the entrance of new supply.
The new supply within the metropolitan area is expected to contribute to the forecasted trends over the next several years. In both 2017 and 2018, roughly 2,200 rooms entered the greater D.C. market area each year, and this trend of added room-night supply is likely to continue. Hotels such as The Line DC and Moxy by Marriott, as well as the recently opened Conrad DC in City Center, have the potential to change the hotel market dynamics in certain submarkets. In addition to the new development projects proposed for the market, rebranding and conversion projects are on the rise, and while the advent of new supply is likely to constrain overall market growth, much of the new supply and conversion projects within the District fall into the luxury or upper-upscale hotel class categories that typically operate at higher ADRs, which should help to mitigate rate declines.
Transaction activity over the past year has demonstrated investor confidence in the market. The quality assets in long-standing, reputable neighborhoods continue to command strong prices, as evidenced by the sales in Northwest. However, within the District, limited available land leads investors and developers to renovate, rebrand, or reposition existing hotels, and these transactions are also commanding high per-guestroom pricing, such as the Liaison Capitol Hill and the Kimpton Carlyle Dupont Circle, which transacted at $323,615 per room and $415,404 per room, respectively. Outside of the District, areas such as Alexandria and the newly branded National Landing submarket of northern Virginia should continue to pique investors' interest now that Amazon has announced its HQ2 location. The outlook for hotel investment and underlying values remains positive for the Washington, D.C. metropolitan area, despite the potential for pull-back in the coming years due to the abundance of new supply and product offerings.
* 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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ADR, Demand, Occupancy, RevPAR, and Supply Projections:
|Market Demand Change
|Hotel Occupancy Increase/Decrease
|Market Supply Growth