USRC Survey: Hotel Market in Recovery Mode

A rebound is in the air.

September 8, 2010
By Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user timparkinson

The hotel market is now on the road to recovery, as US Realty Consultants Inc.’s Mid-Year 2010 Hotel Investor Survey reveals. For both limited-service and full-service properties, the signs are there.

As is the case with most other commercial real estate sectors, while investors have been able to get good deals on certain properties, those highly anticipated, bargain-basement prices never quite materialized, and now the price tags are slowly getting bigger. A rebound is in the air. The change is particularly evident in the full-service hotel sub-sector, according to USRC, going-in overall capitalization rates fell to 8.7 percent, a decline of 60 points from the Columbus, Ohio-based firms previous six-month survey, released in March.

And there’s more. Discount rates dropped by 90 basis points to a level last seen in USRC’s Mid-Year 2008 survey. Yield requirements went on the decline and anticipated ADR growth increased, marking what USRC describes as “the healthiest movement in investor sentiment we have seen in the past two years.”

The survey findings are clear: the bottom of the market is definitely in the past for hotels. “There has been a shift in the last three months, and we expect that shift to continue” Jeffrey H. Walker, Principal and Managing Director of USRC, told CPE. “What the data tells us is investors believe the market has turned the corner and they are now anticipating that revenue is going to rebound and outpace expenses. In short, they anticipate a growth in net income.”

And as faith in the hotel market grows, so will acquisitions. “More capital will start entering the market as buyers perceive growing net operating income, so there will be more transaction activity,” Walker said. “It’s already started to happen.”