US hotel value to increase 25% in 2012: HVS

An optimistic outlook for the industry marks the 2011 edition of the HVS U.S. Hotel Valuation Index. The U.S. lodging market experienced strong demand recovery throughout 2011. Strong occupancy growth continued in 2011, as well as some initial recovery in average rates.

The transaction side of the business has increased considerably from the nadir witnessed in 2009 as numerous high-profile assets have come to market, and fierce bidding is commonplace among active institutional buyers and investors.

Highlights of the report include:

  • Value for a typical U.S. hotel is forecast to increase by 28% and 25% in 2011 and 2012, respectively
  • U.S. hotel values are projected to exceed 2006 peak levels by 2012
  • Relative to the hospitality industry, investors aggressively re-entered the hotel market in 2011, and continue to do so now
  • Hotel transactions in 2011 have involved larger and more expensive properties.
  • Hotel capitalization rates and other rates of return have fallen to one of the lowest points in history — this is due to low mortgage interest rates, the large amount of equity capital chasing very few acquisition opportunities and the fact that there is huge upside potential in future NOI
  • Las Vegas and Tampa are expected to register the most growth from 2009 (low point) to 2015
  • San Francisco, New York City, and Oahu are expected to be the most valuable markets for hotel owners on a per-room basis by 2015
  • On an annual compounded basis from 1987 to 2015, Austin, Texas; New York City; and Miami; have/are expected to exhibit the strongest yearly increases
  • Markets with low risk but high return on investments are San Diego, New Orleans, San Antonio, and Seattle, based on market volatility analysis
  • San Francisco leads the race to hotel value recovery

For a full version of the report, click here.