PKF Consulting USA released the results of its annual Hospitality Investment Survey, which indicates that the indexes for hospitality investment are posting good numbers and continuing to operate at optimum performance levels. The survey shows profits are up, debt is more readily available at attractive terms, cap rates are remaining stable and the coming term is expecting to bring with it increased values.
“With supply growth forecast to remain below the long-run average, the outlook for exceptional returns on hotel investments appears to be positive,” said Scott Smith, MAI, VP in the Atlanta office of PKFC. “The only outstanding question among the respondents to our survey is ‘how long can the industry maintain this peak performance?’”
The optimism is driven by slow forecasted supply growth, below the average 1.9 percent through 2016 before increasing to 2.1 percent in 2017. PKF Hospitality Research believes this modest growth will lend strength to occupancy, increasing average daily rates (ADR) and revenue per available room (RevPAR) growth through 2016.
According to PKF-HR’s 2014 Trends in the Hotel Industry report, property level net operating income (NOI) increased for the typical U.S. hotel by 10.1 percent in 2013, just below the 2012 year-over-year increase of 10.2 percent. Double-digit annual gains in NOI are also forecast to persist through 2015.
On the investment front, capitalization rates decreased to 8.27 percent, the lowest OAR recorded since PKF began releasing this survey. However, discount rates (un-leveraged IRR’s), terminal capitalization rates, and equity yields all remained virtually unchanged compared to last year. Survey respondents also indicated that the average holding period for assets has increased by approximately six months.
The Hospitality Investment Survey also asked respondents to provide capitalization rates by property type, with luxury hotels and boutique properties continuing to be underwritten on lower cap rates compared to typical, full-service hotels. Cap rates for full service hotels vary widely depending on the age of the asset, with full service properties less than 15 years old had an average cap rate of 80 basis points less than hotels 16 years or older.
This is more good news for the hotel industry from PKF's perspective, with a recent report showing that the industry as a whole is operating at peak performance, achieving an occupancy level of 63.6 percent in 2014.