Manhattan hotels recorded the highest sales price per square foot in the city over the past few years, according to a new report from Jones Lang LaSalle Hotels (JLLH) comparing the price per square foot of hotel properties sold during a 10-year period against the price per square foot of office and multifamily assets.
The report found hotels command an average of US$681 per square foot. In 2011, the price per square foot for hotel, office and multifamily real estate assets in Manhattan was US$752, US$721 and US$472, respectively. In 2012, the price per square foot for hotels is expected to increase to a whopping US$890, due to high-profile transactions like the Essex House Hotel, which traded in September 2012, and several other high-priced hotel sales that have closed or are expected to close by year’s end.
“Investment volume in New York hotels jumped to an all-time high of $3.5 billion in 2011, and we expect total investment volume will reach $2.4 billion in 2012,” said Arthur Adler, managing director and CEO of JLLH, Americas. “The price per square foot for hotel properties has historically surpassed other asset classes, although the gap between hotel and multifamily prices has narrowed over the past two years.”
The report demonstrated that at the height of the recession, on a price-per-square-foot basis, office properties posted a 54% drop in 2009 compared to a 17% decrease for multifamily, while hotels increased 1% during the same time period.
The multifamily sector exhibited the strongest recovery, with a price-per-square-foot increase of 71% between 2009 and 2011, compared to a boost of 34% for office and a drop of 24% for hotels. The decline in hotel price per square foot between 2009 and 2010 is counterintuitive, JLLH said, as the transactions market was considerably stronger in 2010 and 2011.
“Although surprising, the decline in price per square foot for hotels can be explained by looking at the type of hotels that were sold in 2009,” said Amelia Lim, executive vice president of JLLH’s Strategic Advisory and Asset Management division. “The hotels sold that year were overwhelmingly smaller and newer select-service hotels. Those transactions skewed the price per square foot upward in a year when there were few transactions overall.”