PKF Study: Investors Focusing On Full-Service Hotels
A new survey recently released by PKF Hospitality Research said that investment in the hotel industry is thriving, fueled by continued increases in revenue per available room that are mitigating the risk of investment. PKF said that the hotel real estate investment market might be closer to the peak of its cycle, spurring sellers to deal now in order to capitalize while prices remain at their highest. Meanwhile, new investment is focusing on full, rather than limited, service hotels.
"The hotel industry has a good ride ahead of it," said Thomas Callahan, CEO of the western region of PKF. "For the next three to five years, everybody is looking at a very profitable period for the hotel industry. Right now, hotels are selling for premium prices, because interest rates are relatively low, capital is available and hotels as an asset class are looking to provide better returns."
Active hotel owners, equity investors and debt providers responded to PKF's 2006 Hospitality Investment Survey and the data indicated a seller's market in which investors are willing to pay substantially high prices, prompting sellers to be more inclined to sell now. Lenders also are more apt to finance the transactions based on lowering default risks.
Most investment is taking place in the full-service sector, especially in properties that are located in major cities. PKF noted that RevPAR in 52 of the largest U.S. markets was poised to rise 6.3 percent by year-end—the result of a 1.5 percent uptick in occupancy and a 4.7 percent increase in average daily rates. According to PKF, this level of RevPAR growth would translate into a 14.9 percent increase in profits for a typical U.S. property.
"Full-service is more attractive because of high construction costs and high land costs. There's going to be very few new, full-service hotels because of that," said Callahan. "You've got a barrier strategy for that class and also strong income fundamentals—you put those things together and it's a good place in real estate to be."