Suzanne Mellen of HVS just authored the consulting firm’s opinion about the 2016 outlook for the hospitality industry. You may link to the article here. For those who don’t want to sign up at HVS’s website, I’ve copied her summary below.
Outlook for 2016
While we are in the midst of a stock market correction that is being particularly harsh to lodging, individual asset values are much more stable than stock values due to differences in liquidity and ownership timelines. Given strong economic fundamentals, and the positive impact of lower energy prices on travel costs and discretionary income, we can expect the lodging industry to perform well in 2016, though at more modest NOI and value gains than in recent years. Cap rates are anticipated to remain low for desirable gateway, high-barrier-to-entry markets. Markets with lower barriers to entry facing new supply are likely to experience a rise in return requirements. One benefit of the changing market environment is that it may reduce the new supply that will be financed and get built during this cycle, lessening the impact on existing hotels. Markets that face downturns in their dominant industries will see the largest rise in cap rates, as buyers factor a NOI reduction into their purchase prices. The positive operating leverage that has fueled hotel value gains is expected to continue over the near term, though the specter of a reversal in hotel operating performance will likely result in higher cap rates and reduced transaction activity.
About Suzanne R. Mellen
Suzanne R. Mellen is the Senior Managing Director of the San Francisco, Los Angeles, and Las Vegas offices of HVS, heading the Consulting & Valuation and Gaming Services divisions. She has been evaluating hotels and associated real estate for 37 years, has authored numerous articles, and is a frequent lecturer and expert witness on the valuation of hotels and related issues. Ms. Mellen has a BS degree in Hotel Administration from Cornell University and holds the following designations: MAI (Appraisal Institute), CRE (Counselor of Real Estate), ISHC (International Society of Hospitality Consultants)