US Hotel Market Figures Don't Tell Whole Story

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Although the sales volume of U.S. hotels in January was up a headline-grabbing 87 percent over the previous January, the numbers don't necessarily reflect overall investor interest in the market. The $1.6 billion in sales tracked by Real Capital Analytics represented several large transactions, including the sale of the Atlanta Marriott Marquis to the Abu Dhabi Investment Authority for $293 million, or $176,000 per key.

Still, the hotel industry is clearly attracting more interest from investors.

"The U.S. lodging industry, in terms of profitability and demand, continues to improve," says Mark Woodworth, president, PKF Hospitality Research, LLC, based in Atlanta. "We see more and more investors getting into the hotel market, although we still have a long way to go to get back to peak (2007) numbers."

The fundamentals of the industry remain strong.

"While the economy as a whole has been growing at a dismal pace, if we look at (the things) that are most important to the lodging industry--business and consumer spending--they have been increasing at good clips and corporate profits have been growing nicely," Mr. Woodworth said. "We have been seeing record levels of inbound international travelers to the U.S. in 2012 and 2013 and the trend line seems to be firmly in place."

Expected cutbacks in government travel in the wake of the sequester that went into effect Friday, especially government employees traveling to meetings or product and service providers, have already been factored into forecasts, Mr. Woodworth says.
"These are concerns, but they won't derail the recovery that has been underway for the last three years," Mr. Woodworth said.

On the other hand,  the sequester is bound to impact some markets, such as Washington D.C., Mr. Woodworth says.
 
But even without taking the sequester into account, several markets are showing strength. At the end of 2012, in the 50 largest domestic hotel markets, 15 had already achieved their previous peak levels of occupancy, Mr. Woodworth says. Those markets are generally coastal or gateway locations, such as San Francisco, Los Angeles, New Orleans, Miami and New York. But there are exceptions, such as Pittsburgh, Cleveland Columbus and Detroit, where occupancy levels have surpassed previous peaks, he says. Pittsburgh, for example, is driven by growth in the healthcare and energy industries, he says.

All of this good news for the hotel market does not mean that there will be a wave of hotels built in the near future, Mr. Woodworth says.  While construction levels are picking up slightly, it will be awhile until developers are able to justify new development, he says.