According to Daniel H. Lesser, LWHA,
“To the surprise of many, the U.S. lodging industry closed out 2016 with operating metrics still at record setting levels; however, its growth trajectory was notably lower when compared with years past. In general, occupancy levels have peaked and any short-term RevPAR growth will be driven by increases to ADR. New supply of hotel rooms will continue to occur primarily in the Upper Midscale and Upscale chain scales. Of the nation’s top 25 markets, New York, Seattle, and Denver are experiencing double-digit increases of new rooms under construction, while eight other markets are currently slated for increases of 5%-8% of existing room supply.”
“Given current U.S. economic expectations, many, particularly non-U.S. investors, believe the coming year will be a terrific time to deploy capital into transient lodging real estate assets that mark rents (average room rates) to market more often than buildings encumbered with long-term credit worthy tenancies. During the late 1970s and early 1980s when the United States was experiencing double-digit annual inflation growth, hotel assets were much better positioned to adjust rents compared with a 100% occupied office building with 10- to 20-year tenancies of government agencies. Clearly, hotel operating expenses will rise during any inflationary environment; however, continuous re-pricing of room nights should allow for revenues to, at a minimum, keep pace and in many situations exceed such increases. Negative pressures on the lodging sector include a strong U.S. dollar, which makes it expensive for people to visit America.
“Furthermore even with a late-year rally, availability of CMBS hotel financing was well off the pace of 2015. The good news is that alternative sources of debt financing have been available from banks, life companies, and private debt funds. At this juncture many lodging markets across the country have reached peak occupancy levels during 2015 and 2016, and they should now be poised for operators to aggressively increase average daily rates.”