The hotel sector has returned to pre-recession levels, and analysts now share a positive outlook for the lodging industry, MBA NewsLink reported July 24.
The sector’s improvement is the result of operating fundamentals reaching new heights, historically low interest rates and a sustainable economic recovery. The second half of 2013 is expected to be “fruitful” for both sellers and prospective buyers.
“Given the increase in operating profits, hotel investors have a notably more positive outlook than they did one year ago,” Arthur Adler, managing director and CEO Americas of Jones Lang LaSalle’s Hotels & Hospitality Group, told MBA NewsLink. “Hotly contested markets like Los Angeles, New York, Miami, Chicago and Philadelphia exhibit the highest ratio of buyers to sellers, and can expect transactions to heat up in the months ahead.”
About 55 percent of the hotel investors surveyed by Jones Lang LaSalle said they planned to pursue acquisitions over the next six months; 28 percent said they would focus on assets. The frequency of “buy” activity has increased 5 percent compared to six months ago, which suggests a continuous upward trend.
Target cap rates remained steady at an average of 7.6 percent, Adler said. However, Jones Lang LaSalle reported that cap rates are expected to decline slightly during the second half of the year, signifying an uptick in asset values, MBA NewsLink reported.
Leveraged internal rate-of-return requirements decreased, falling 40 basis points below the most recent three-year average. However, recent interest-rate movement is expected to influence investors’ expectations for future returns.
Among surveyed cities, Boston and San Francisco rank as top investment target markets with the strongest expectations for hotel performance. Closely behind were major gateway markets, including Hawaii, Los Angeles, Miami, New York and Seattle.
Adler said that rising corporate and group demand, along with an increase in international visitors — particularly those from China and Brazil — have driven this performance.
“Limited new supply additions across the country will underpin performance expectations in the near-term; however, New York is the exception,” Adler told MBA NewsLink. He said that Manhattan represents the highest new construction pipeline of any major U.S. market, with nearly 3,000 rooms becoming available in 2013. “Despite an increase in new supply, investors still ranked New York among the top in terms of outlook expectations, and expect rapid absorption and continued strong top-line performance.”