Second Quarter 2019: Gradual Hotel Slowdown: Has the Party Ended?
Liu, Crocker H.; Nowak, Adam D.; White, Robert M. Jr
In this issue, we introduce our new regional indices of hotel performance. Based on these indices, hotels in the Midwest and Mountain regions (mostly hotels in Arizona, Colorado, and Nevada) have outperformed other regions, while hotels in the Pacific region (primarily California) and South Atlantic region (mostly Florida) have grown at a more moderate pace in the post-recession era. The performance of hotels in gateway cities declined this quarter, narrowing the gap in performance relative to hotels in non-gateway cities. Hotel financial performance overall is now in the red zone: operating profit stands below a hotel property’s borrowing cost based on economic value analysis (EVA). The price performance of small hotels and repeat sale hotels has reversed course and has started to weaken, while larger hotels continued their downward price spiral. The cost of hotel debt financing and equity financing have declined, with no change in the relative risk premium for hotels. However, the spread between the 10-year U.S. Treasury bond and the 3-month bond is now in negative territory, which might affect market liquidity as well as contribute to slower price growth in hotels. A reading of our tea leaves suggests prices are expected to decline for both large and small hotels. This is report number 31 of the index series.
hotel industry; performance; real estate
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