Our hotel investment survey results are in, and the 2013 outlook for the US lodging industry suggests continued improvement in industry fundamentals and investment activity.
Hotel Deal Activity Improving
In a survey of delegates to our Americas Lodging Investment Summit (ALIS) event, taken in September about expectations regarding ‘deal activity’, more than half (54%) expected that activity levels would improve by the opening of ALIS in January of 2013. This represented a substantial improvement in the outlook when compared to the same survey question answer from one year earlier, where the answer was 38%. The least ‘positive’ response to this question in the 6 years we have asked it was the 14% saying ‘better then today’ response from the September 2008 survey about the outlook at the January 2009 ALIS.
Hotel Development Activities Increasing
Another significant finding was the growing belief that development activities were going to increase. Given the lack of development activity during the past several years, this intuitively makes sense. When asked about where they expected to see the ‘largest’ growth in capital availability in the coming year – 24% said for ‘Development’ activity, with an additional 15% indicating that both ‘Development and Acquisitions’ would grow equally. Just a year ago, only 5% of the respondents thought development would lead the way, with an additional 12% expecting similar growth in ‘Development and Acquisitions’ capital.
Where’s the Money?
Where is the money going to come from? After rising to the top and then falling out of favor over the past two years, REITs again look to be the most active investor classification. The survey indicated they would narrowly edge out opportunity funds as the most active investor classification. These two capital sources have ranked #1 or #2 in each of the past four annual surveys.
With development activity expected to become a reality for many players in the hotel investment community – what sort of development is financeable today? Similar to the results over the past five years, limited service emerged as the most ‘financeable’ today, with 40% of the respondents selecting this sector. Upscale and mid-Market followed in second and third place respectively – similar to the positions held in the previous five annual surveys.
What’s Driving the Growth in Hotel Investor Optimism?
While there is considerable conversation about the large amount of Equity looking for places to invest, and a belief that the lending community is starting to get back into the hotel real estate game – the improving industry fundamentals haven’t gone unnoticed. With the dearth of new supply and the improvement in the economy the ‘hotel numbers’ continue to get better. A survey question posed about RevPAR growth expectations over the next twelve months show higher expectations from the already positive results from a year ago. 97% of respondents expected RevPAR growth in the next twelve months, up from 88% expected in last year’s survey. Only 3% expected flat growth in the US. Of note, the last time we saw a ‘single digit’ Flat and No Growth combined response were the expectations registered for 2005 and 2006. By way of comparison – two other recent BHN surveys which focused on Asia and Europe resulted in 36% of respondents expecting flat or no growth in RevPAR in China, with 46% expressing the same sentiment for Europe.
What’s Happening in Europe?
On the topic of Europe and its outlook – we asked our European hotel investment community colleagues ‘how confident’ where they that the debt crisis would have a solution in the next 12 months. Only 5% were very confident, 35% were somewhat confident, with 60% being not confident. Coupled with the softer RevPAR growth expectations, it’s safe to say that the short term investment climate in Europe is likely to be less optimistic than the US.