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U.S. Investment in Price Per Hotel Room Drops 12 Percent

Alohilani Resort Waikiki Beach - Lobby

Alohilani Resort Waikiki Beach Sold for $515 million

Hotel transactions in the U.S. top 25 markets accounted for just 37% of sales in 2017, down from 52% of all sales in 2016.

A shift in the U.S. hotel transaction mix led to a 12% drop in investment price per room, according to the Hotel Transaction Almanac 2018, released by STR in conjunction with Hotel Brokers International (HBI).

The hotel transactions tracked by STR totaled nearly $20.1 billion, but the average total investment per room declined more than $30,000 (to $240,000) from the record average established in 2016 ($272,000). This was the lowest total investment price per room since 2013. Investment price per room is equal to the sale price plus expected capital expenditures.

“The lower price point is more of an indication of the mix of hotel assets sold, rather than a decrease in hotel values themselves,” said Hannah Smith, STR consultant. “Portfolio transactions were a key factor in the decline, as properties sold within a portfolio represented 21% of all of the hotels sold last year. Portfolios tend not to include many upper upscale or luxury hotels.”

Smith also noted that there was a lower concentration of hotel transactions in the Top 25 Markets, which tend to sell at higher price points. After accounting for 52% of all hotel sales in 2016, the Top 25 Markets represented 37% of sales in 2017. Other key findings from the Hotel Transaction Almanac 2018 include:

“We expect hotel values to remain at an all-time high in 2018, despite a rise in interest rates,” Smith said. “Capitalization rates, however, will likely increase again this year, as occupancy has peaked in many major markets and rate growth has become sluggish. With all that said, transaction volume is mostly expected to be a continuation of 2017.”

For more information regarding the Hotel Transaction Almanac, please visit here

Posted by on March 14, 2018.

Categories: Hotel Industry News

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