Center for Hospitality Real Estate Strategy
Penn State Index of U.S. Hotel Values
The Penn State Index of U.S. Hotel Values is an index produced by the Center for Hospitality Real Estate Strategy that projects hotel values for the overall U.S. and for the specific hotel property types of Luxury, Upper Upscale, Upscale, Upper Midscale, Midscale and Economy hotels. Read more about the Penn State Index of U.S. Hotel Values >>
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|Source: The Pennsylvania State University|
In the news
HotelNewsNow.com reports on the Penn State Index of U.S. Hotel Values. Read the full articles PSU Index: Hotel values project growth in 2014 (July 2013) and Hotel value growth expected to continue (October 2013).
Rising Hotel Values
Originally Published January 2013
Economic growth is expected to be modest in 2013, with Gross Domestic Product (GDP) anticipated to rise by 2.9 percent, but the supply of hotel guest rooms is expected to increase only 0.7 percent over the next year, much lower than the 1.7 to 3.1 percent annual increases seen from 2007 to 2009. As a result, there will be continued upward pressure on hotel market values as performance fundamentals remain relatively strong and hotels continue to be good investments in an uncertain economic environment. Positive factors affecting hotel values include rising consumer spending (2.3% growth anticipated in 2013), increasing home values (5.6% growth anticipated), and limited, if any upward pressure on oil prices. Offsetting the positive factors is the expected continued high unemployment rate, though the expected rate of seven to eight percent would be lower than in recent years.
Hotel values are expected to register a healthy 8.7 percent growth rate in 2013 following an 11.8 percent increase in 2012. Luxury hotels are anticipated to continue to show strong value increases with an 8.9 percent gain in 2013 which, at $28,773 per guest room represents the highest increase in value per room of all hotel types. Economy hotels are expected to record the greatest value percentage increase at 10.8 percent. At this point, it isn’t possible to project 2014 hotel values with any reasonable level of confidence until more information is available about results of the handling of the debt crises in the U.S. and abroad, but most of the positive fundamentals affecting hotel values are anticipated to continue into 2014.
Time to be Social
Originally published March 2011
Last April, I wrote a column about how online travel agency websites (like Expedia and Priceline) affect hotel values. I received quite a bit of mail about that article—a lot of people have been wrestling with how to control this new and increasingly important technology. One of the key messages of last April’s article was that hoteliers need to track how much of their guestroom inventory is being made available and booked on OTAs, and at what rates those rooms are being booked.
Another technology a lot of hotel operators are wrestling with is online social media (OSM) websites. In some cases, OSMs are part of OTAs. Over time, a number of valuable “best practices” have developed for hoteliers to manage OSMs including: responding to all guest comments (even the negative ones), taking to heart all guest comments (especially the negative ones) and disputing with the OSMs any comments that appear suspect.
Read more about Time to go Social.
When is it a good time to purchase hotels?
Originally published June 2011
Lots of people I spoke to at the 33rd Annual New York University Hospitality Industry Investment Conference in New York in June agreed that a fundamental method for determining whether it’s a good time to purchase hotels is whether within a given hotel market, there’s the ability for investors to purchase properties at below replacement cost at a time when average daily room rates are beginning to gain traction and show increases. There are now a number of hotel markets fitting into this acquisition opportunity model.
According to HVS President and Founder Steve Rushmore, areas that fit the model include traditionally strong markets like New York and San Francisco, and also re-emerging markets like New Orleans and Las Vegas. Many smaller markets fit the bill too. One would expect that in the not-too-distant future, investors will find it increasingly difficult to buy hotels below replacement cost in such markets. Combined with the early re-emergence of hotel acquisition financing at a time when mortgage interest rates are near historical lows, this period is indeed an attractive one for hotel acquisitions.
Hotels Expected to Increase Market Value in 2011 and 2012, Index Finds
Originally published March 2011
Despite the poor economy, hotels are expected to do well in 2011 and 2012, according to the most recent results generated by the Penn State Index of U.S. Hotel Values.
"Since 2008, U.S. hotels have lost approximately $8 billion in market value, but that downward trend is now changing," said Director of the School of Hospitality Management John O'Neill, who developed and now maintains the index.
Recent data generated by O'Neill's index suggest that economy hotels will show strong increases in per-room market value of 15 percent in 2011 and 17.8 percent in 2012; midscale hotels, such as Howard Johnson, La Quinta, and Quality Inn, will increase 7.6 percent in 2011 and 10.9 percent 2012; and upper midscale hotels, such as Comfort Suites, Hampton Inn, and Holiday Inn, will increase approximately 11 percent in both 2011 and 2012. The index indicates that luxury hotels will increase 9.3 percent in 2011 and 12.6 percent in 2012; however, the data also show that these hotels will see the highest increases in per-room value of approximately $24,500 in 2011 and $36,400 in 2012.
Read more about expected to increase in market value in 2011 and 2012.
The OTA Conundrum
Originally published April 2011
Since 2008, U.S. hotels have lost approximately $8 billion in market value. At the same time, on-line travel agency (OTA) giant Expedia has gained about $4 billion in market value. The Expedia organization includes Hotwire, Trip Advisor, and Hotels.com, in addition to the Expedia brand. What has been bad news for hotel owners has been good for Expedia shareholders. Are the opposite trends related?
Correlation doesn’t prove causation, so let’s look at the math. In 2011, there are approximately 4,831,000 hotel rooms in the U.S. (according to Smith Travel Research), worth an average of $88,215 per room (per the Penn State Index of U.S. Hotel Values), or $426.17 billion, total. In 2008, there were about 4,630,000 U.S. hotel rooms worth an average $93,752 per room, or $434.07 billion – $7.9 billion greater than today. Even with 201,000 more hotel rooms today than three years ago, the total value of U.S. hotels is actually down almost $8 billion!