Significant new supply headed to many major U.S. hotel markets

Many of the top U.S. hotel markets realized record performance figures in 2015, continuing an upward trend that has brought about an unprecedented amount of proposed hotel supply. HVS’ annual Hotel Market Connections conference series, which concluded June 16, also revealed insights into supply, demand, performance and transaction dynamics for the first half of 2016.

As of June 2016, U.S. hotel inventory stands at 54,258 hotels (5.07 million rooms), with 4,154 new hotels (509,607 new rooms) in various stages of the pipeline.

“Comparing this year with 2015, occupancy is holding steady nationwide, while average rate is still trending upward,” said HVS Managing Partner Rod Clough, MAI. “However, cap rates are on the rise as buyer expectations for the near term are not as aggressive as those in 2015. This has created a gap between buyer and seller expectations, as well as a slowing of deals ultimately closing in 2016.”

Nationwide, 2,026 hotels transacted in 2015, totaling more than $40 billion. Comparable figures from the first quarter of 2016 show that the transaction market has slowed but remains active. While a recorded 516 properties sold in the first quarter of 2015, there were 347 assets sold during the same period this year. The average price per room in the first quarter of 2015 was $185,222, versus $138,361 this year.

The Denver hotel transactions market has been very active in 2016, with 21 sales totaling just over $242.6 million recorded through April. Given the entrance of more than 6,500 new rooms over the next several years, average occupancy in Denver is forecast to decline from 75.7 percent in 2015 to just under 73 percent in 2019. The average rate, however, is anticipated to climb to nearly $131 over the next three years, up from $120.81 in 2015.

Edited by the Colorado Real Estate Journal staff.