PORTSMOUTH, NH—2017 was something of a schizoid year for the hotel sector. On the one hand, by some measures—but not all—sales transaction volume was down; on the other, the average selling price per room (ASPR) was up. On one hand, the lodging industry established a new record for supply, but on the other hand it also had a record year for key performance metrics.
Lodging Econometrics said Thursday that based on 827 hotel transactions where selling prices were made public, the ASPR last year was $141,479. That's down from the peak of $154,230 set in 2015, but up 8.6% year over year, according to Portsmouth, NH-based LE.
Conversely, the LW Hospitality Advisors 2017 Major US Hotel Sales Survey of transactions valued at $10 million or more found that the ASPR was down 11% Y-O-Y from 2016, due to larger properties changing hands. Accordingly, the number of trades increased by approximately 5%, from 173 in '16 to 182 in '17, while total dollar volume rose roughly 7% to $13.6 billion, GlobeSt.com contributor Daniel Lesser wrote last month.
Real Capital Analytics' broader-based survey of the hotel sector's sales performance for '17 found a 24% Y-O-Y drop to $27.5 billion. “The source of the volume declines in '17 was primarily from a lower pace of portfolio and entity-level sales,” according to RCA. “These megadeals represented only 18% of total activity for the year but had represented 41% of deal volume just two years earlier.”
Entity-level transactions in particular were hard hit last year, plunging 87% Y-O-Y, according to RCA. In fact, September's Felcor Lodging Trust/RLJ Lodging Trust merger, an all-stock deal valued at about $1.02 billion, was the year's only such transaction.
“There are still transactions happening, but investors are more selective than they were a couple of years earlier,” according to RCA's year-end report on hotel sales. “Deals are more focused on locales and assets where there is a yield opportunity. Deal volume in fact grew 13% Y-O-Y in the tertiary markets which are the smallest, least expensive markets in the US.”
If sales volume was either up or down last year depending on how it's measured, then there's general agreement that the lodging sector's performance was stellar. “Driven by robust business and leisure travel, the US hotel industry completed another year of record setting metrics including: Occupancy, Average Daily Rate, RevPAR, Available Rooms, Occupied Rooms, and Rooms Revenue,” Lesser wrote on GlobeSt.com last month.
Data from STR provide some specifics. Occupancy increased 0.9% to 65.9% in '17, while a 2.1% ADR increase to $126.72 drove RevPAR up 3% to $83.57 over the year prior. The absolute values in all three metrics were the highest STR has ever benchmarked.
With 1.87 billion room nights available, domestic hotel supply reached a new high water mark last year. Yet demand, which reached 1.23 billion room nights sold in '17, grew faster Y-O-Y than supply: 2.7%, compared to a 1.8% increase in supply.
“The industry outperformed projections and reached record-breaking levels across the metrics in 2017,” says Amanda Hite, president and CEO of Hendersonville, TN-based STR. “Late-year demand growth, which was no doubt boosted by post-hurricane business in Houston and several major Florida markets, pushed well past a healthy influx of new rooms entering the marketplace. That allowed the industry to end the year well above forecasted levels” after seeing comparatively modest rates of growth in the year's first half.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
