Marcus & Millichap

Hospitality Investment Forecast

National Report, 2017 Outlook

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Hospitality Demand and Performance

  • Economic trends point to another year of growth in 2017, generating higher room revenue and more occupied rooms.
  • Current plans to increase infrastructure and defense spending could initiate a higher rate of economic growth. However, the White House’s relationship with Congress and the legislation enabling such initiatives, and potential changes in tax policy, may be slow to evolve.
  • Growth rates in primary hospitality performance indicators will moderate. Downside risks include an unanticipated disruption in travel related to events outside the industry.
  • Projects slated for delivery this year mark the peak of this cycle but nonetheless remain well below the high points of recent cycles. Select-service brands dominate the construction pipeline in 2017.
  • Airbnb remains a competitive factor, and additional municipalities will follow the lead of large markets New York City and San Francisco to impose regulations on short-term rentals.

Investment Activity and Capital Markets

  • Hotel lenders are tightening leverage and loan proceeds as growth in primary revenue metrics eases. Liquidity in the debt market remains healthy, but higher interest rates are raising borrowing costs.
  • The Federal Reserve increased its short-term lending benchmark in March. The central bank will likely be more active in raising the Fed Funds rate during 2017.
  • A considerable number of new hotels are coming online, encouraging hotel investors to assess the impact of new supply and revise price expectations. Investors’ and sellers’ price targets will realign accordingly.
  • A reduction in the unemployment rate and the implementation of higher minimum wages in many areas are presenting challenges in managing labor costs. Wage pressures will intensify in the hotel industry during 2017 as the economy remains near full employment.

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