Year-to-date August 2019, select-service hotel supply in the United States grew 2.7 percent, surpassing the national average, according to JLL’s “U.S. Select Service 2019 Report.” Meanwhile, demand for the sector increased 2.5 percent. In 2020, JLL expects that select-service hotels will see minimal revenue-per-available-room growth, mainly driven by the imbalance between supply and demand.
And, according to JLL’s recent “U.S. Select Service Hotel Investor Survey,” investors remain cautious about the sector’s outlook. But even so, the data showed that transaction activity in the space has remained steady, accounting for 37 percent of all U.S. hotel transaction volume, almost in lockstep with the $5.8 billion achieved in 2018 over the same time period (YTD August). With that, JLL expects that select-service deal volume will reach about $9 billion this year (including NexPoint Hospitality Trust’s $318 million buy of Condor Hospitality Trust).
Following are some of the important points to know from JLL’s research.
Single Assets Reigned…
As of YTD August 2019, single-asset select-service deals accounted for 76 percent of total sales in the sector, equaling $4 billion. The average price per key of these deals totaled $147,000.
…But Portfolios Next in Line for Crown
According to the report, 61 percent of investors expect to acquire both select-service portfolio and single assets by the end of the year. However, only 33 percent of investors will look to acquire single assets exclusively, a decrease of approximately 200 basis points in comparison to 2018 responses. Investors’ interest in portfolios is reflected in YTD August 2019 portfolio volume of $1.3 billion, a level on par with 2018 portfolio volume during the same period.
Researchers also noted that portfolio deal volume was supported by Starwood Capital Group’s purchase of Noble Investment Group’s 1,057-room select-service portfolio. The deal included eight hotels with a price tag of $229 million.
Related Story: Despite RevPAR growth slowdown, U.S. hotels continue to be built
Where Investors Want to Buy
Over the next two years, investors of select-service deals are looking to buy in these cities (in order of favor): Los Angeles, San Diego, Atlanta, Boston and Indianapolis.
Overall, secondary markets are top of many investors’ lists, with 42 percent making them their focus this year and beyond. Gateway markets are next, with 33 percent of investors targeting those. Then, 15 percent of investors are looking toward tertiary markets, while 9 percent said they are not buying.
Performance Expectations
Is the select-service darling falling out of favor with guests and investors? Investors certainly have become more cautious as to the segment’s performance, according to JLL’s report. This sentiment is due to the amount of select-service hotels that have come online of late. Over the past 12 months as of August 2019, 75 percent of the total number of hotel rooms that have opened were select service.
Of investors surveyed, 26 percent expect RevPAR for the segment to grow at least 2 percent at year-end 2019. Additionally, 70 percent of respondents said they expect flat to positive RevPAR growth across their portfolios in 2020. The rest (4 percent) anticipate that RevPAR will dip more than 5 percent.