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Hospitality Industry

The Hospitality Industry has been enjoying terrific demand growth from all its key drives:  business travel, trade show and conference attendance and tourism for the last ten years.  The market now is comprised of almost 56,000 hotels and approximately 5.28 million rooms and is still firing on all cylinders, reaching all-time highs for 12 month averages in occupancy (66.2%), ADR ($128.27) and Rev Par ($84.98).  According to Smith Travel Research, hotels across the U.S. have reported Rev Par increases over the past 100 consecutive months.  While hotel operators are feeling pressure from increased insurance costs, labor costs and other expenses, hotel metrics are forecast to climb in 2019 led by increases in occupancy (+ 0.4%) to 66.2%; ADR (+ 2.6%) to $129.00 and Rev Par (+ 3.0%) to $86.00.

Lodging Econometrics reported strong increases in supply, with the addition of 1,086 hotels and 125,614 rooms in 2018, a 10% increase over 2017.  New rooms are always a concern but because new demand, in general will continue to exceed new supply through 2019 this should not be a concern, although there are some markets that are overbuilt.  While growth should continue across all segments, the highest growth for 2019 is expected in the independent segments (+ 2.5%) followed by midscale, upper midscale and upscale.

Transactions in 2018 were up as compared to 2017 with cap rates remaining steady.  The only limiting factor to more hotel transactions is the lack of hotels for sale.  Both equity and debt are available for good, solid transactions.  Nationally, full service hotels are selling at a cap rate of 8.1%, while limited-service hotels are selling at a cap rate of 8.8%.  The outlook is stable, with an at-most increase of up to 25 Basis Points.

Terry Baltes