Marcus & Millichap

Mountain West Hospitality Research Report

Mountain West Region, Second Half 2016

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Region Navigating a Course to Higher Occupancy in 2016

A modest pace of growth takes hold. Hotels in the Mountain West region, comprising Colorado, Idaho, Montana, Utah and Wyoming, posted lower increases in occupancy and revenue metrics in the first half of 2016, marking a trend that will persist in the near term. Guest volume continues to rise, but not nearly as robustly as one or two years ago. Supply growth is increasing and weighing on occupancy, daily rate and RevPAR gains. Amid the intrusion of new rooms, hotel owners along the Wabash Front and in Denver, the region’s largest markets, will continue to modify operating strategies. Generating new bookings and maintaining property performance will demand new approaches even as expanding economies in the major markets sustain a flow of business travelers and provide new growth opportunities. Outside of the major markets, and Colorado and Utah more generally, the performance of Idaho in the first half stood out. Strong room demand drivers are fueling higher occupancy and revenues, while supply growth remains slight and forward-looking planned project totals are also subdued. The robust growth this cycle has elevated Idaho to the third most active state for sales in the region despite having the smallest inventory.

Hotel owners in the region leveraging favorable conditions to execute deals. Continuing flows of equity seeking to expand local portfolios and accessible acquisition debt will support a liquid investment market in the near term. Approximately 90 percent of properties sold in the Mountain West over the past 12 months were in Colorado, Idaho and Utah. Hotels in other states likely offer opportunities for steady income and appreciation potential but tend to attract a buyer pool of local and regional investors. Flagged hotels comprise the majority of assets sold in the region and will likely retain keen interest in the coming months, depending on the size and content of competitive brand construction pipelines in certain markets. Select-service, in particular, remains highly sought due to lean operating models, a factor supporting a jump in deals last year. Supply growth is intensifying, indicating that the occupancy contribution to RevPAR could diminish in the quarters ahead. Several hundred rooms moved into the final planning phase before groundbreaking in the first half of the year. The total includes more than 900 rooms in Utah and the increase suggests that due diligence periods may lengthen in the coming months as the impact of new supply on specific assets is evaluated.

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