Hotel Rates, Bookings Continue to Grow

Michael Tucker mtucker@mba.org

July 19, 2018


North American hotel owners continued to experience "significant" growth across all travel segments in the second quarter, reported TravelClick, New York.

Average daily rates increased 2.7 percent and bookings rose 1.4 percent during the quarter, said TravelClick Senior Industry Analyst John Hach.

"Hoteliers in the first half of 2018 experienced consistent rates and steady bookings growth and forward-looking data predict the third quarter will be just as promising," Hach said. "It will offer the strongest level of organic growth that North American hoteliers have seen in recent years."

TravelClick said group travel was particularly strong in the second quarter, growing 3.0 percent in ADR, 4 percent in bookings and an impressive 7.2 percent in revenue per available room. Individual transient travel also stepped up, increasing 6.0 percent in bookings and 2.9 percent in ADR overall.

William Hughes, Senior Vice President with Marcus & Millichap Capital Corp., Calabasas, Calif. said hotel lenders reduced credit spreads in the second quarter and construction lending remains limited. "A wide range of capital remains available in the hotel sector, with lenders reducing credit spreads to stay competitive," he said. "In general, underwriters are taking a disciplined approach, developing an understanding of the market and being stringent on credit standards."

Construction lending also remains conservative, which could benefit hotel occupancy improvement in the long run as fewer projects enter the construction pipeline, Hughes said.

Marcus & Millichap's National Hospitality Report said improving occupancy and revenue growth underpin demand for hotel properties. "Bidding heated up for hotels in smaller markets in the second quarter," the report said, noting transaction velocity rose nearly 2 percent nationwide as demand picked up in many smaller markets. "Private investors accounted for more than half of sales volume, with buyers in the $1 million to $10 million price tranche particularly active. The share of private investors competing for hotel properties has increased steadily since 2014."

Trades picked up "considerably" in upper-upscale hotel properties, with the number of sales rising nearly 30 percent during the year ending in the first quarter, Marcus & Millichap. Upper-upscale hotels changed hands with average first-year returns in the high-7 percent band during the past 12 months.

Independent properties remain a popular target as consumer demand for unique experiences evolves, Marcus & Millichap said. Limited listings spurred competition for these assets, lifting the average price 6 percent during the past four quarters to $155,100 per room in March.

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