2015 Outlook

The U.S. Hotel industry has recovered and is prospering under ideal conditions. While the economy is growing at modest levels of GDP growth, the U.S. hotel industry is experiencing much stronger growth. The combination of this accelerated growth and just a trickle of new supply entering the market, has led to rising RevPAR in most all U. S. markets. Fewer buying opportunities present themselves today as pricing for existing assets is reaching new highs in many markets. In the preceding two to three years, acquisitions could be justified simply when compared to previous market highs in pricing and performance and anticipating that the cycle will soon return markets and individual properties to at least those previous highs.

Now that many markets are performing at all-time highs, the challenge in acquisitions is projecting the future. Can we expect these trends to continue and if so will they likely continue for years? As asset values begin to reflect values well above replacement cost, development becomes a meaningful opportunity to enter specific markets. Unfortunately, the markets that will likely have the longest run of prosperity tend to be the “Barriers to Entry” markets where processing new development can be time-consuming and expensive. Conversely, markets with abundant development opportunities will run the risk of too much supply dampening the future market’s performance.

On a very positive note, group demand appears to be returning after lagging well behind leisure and transient demand recovery. We believe that this factor combined with a stable and modestly growing economy will carry the lodging market upwards and well past the 2015/2016 political season. The prognosis for continued prosperity will set a new trajectory in January 2017.