Fourth Quarter 2012: Price Growth Is Moderating: A Return to Normalcy?
Liu, Crocker H.; Nowak, Adam D.; White, Robert M. Jr.
The Cornell Hotel Indices reveal that the hotel industry is continuing to experience positive price momentum for small hotels, with a moderating of prices for larger hotels. Consistent with this weakening in the price for larger hotels, construction costs for new 5-star hotels are now on par with the price of existing hotels. We also observe a lowering of expected growth in net operating income for full service hotels with anticipated NOI growth also moderating for limited service hotels. Hotel properties also exhibit a widening premium relative to other property types, signaling higher perceived default risk for hotel properties. Our index of business confidence suggests that we should continue to see a moderation in the prices for larger hotels. We expect a moderating of prices for smaller hotels going forward given the flattening of expected growth in NOI for limited service hotels and the worsening of consumer confidence in December. We also anticipate a continuous, slow growth in the hotel repeat sale index based on the NAREIT Lodging/Resort index and the Chemical Activity Barometer. This is paper number 5 of the index series.
Cornell; hotel valuation models; interest rate spread; commercial real estate; HOTVAL
Supplemental File: Hotel Valuation Model (HOTVAL). We provide this user friendly hotel valuation model in an excel spreadsheet entitled HOTVAL Toolkit as a complement to this report.
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