What’s Ahead for Hotel Construction?
Hotel occupancy, construction and sales are approaching peak levels and 2016 could be the last strong year for this expansion cycle. Recent analysis from Marcus & Millichap and JLL provides these details:
- Room occupancy rates are near an all time high, reaching 65.6 percent by December 2015, says a recent Marcus & Millichap report.
- Room rents are on the rise, increasing 5.2% to $120.99 on average. With more tourists and business travelers occupying rooms, owners and investors are enjoying an average revenue per available room of $80. So, of course, an increase in interest is sparking near-record levels of new construction.
- Hotel sector capital markets also remained strong, with global hotel deal volume rising by 10 percent to nearly $60 billion in 2014, says JLL. Both Wall Street and Main Street are currently lending on hotels and transaction volumes could reach $68 million in 2015. See JLL’s Hotel Investment Outlook Report for more.
Caution for investors
Analysts are also warning investors to think ahead when building new hotels: assets that takes three years to build could open after the demand for hotels starts to drop again. As a result, developers are focusing on select service hotels that are less expensive and faster to build than full-service hotels:
- Courtyard by Marriott
- Holiday Inn
- Hampton Inn
These service hotels are making up a good portion of the 4,038 projects currently under construction, which will bring 507,221 new hotel rooms on the market in 2016. That may seem like a lot, but it’s a far cry from the 5,883 new hotels that came online in 2008. Also, cross-border transactions should account for one-third of deals in 2015, with the U.S., China, Singapore and the Middle East as the biggest capital exporters.