Hotel Capitalization Rates Stabilize, According to USRC Hotel Investor Survey
The Winter 2010 USRC Hotel Investment Survey indicates that, in general, overall investment parameters for both limited-service and full-service hotels have generally flattened, a signal that the industry may have, at least for now, hit the proverbial bottom.
More specifically, full-service going-in overall capitalization rates modestly improved since Mid Year 2009, while discount rates remained essentially unchanged. Importantly, overall ADR growth expectations improved. This combination of factors leads to a summary conclusion of similar overall yield requirements, but with stronger growth expectation from current "trough" levels, resulting in steady to modestly lower overall going-in rates.
Although the stabilization is a positive sign, it is important to see the data in the context of longer-term trends. Discount rates are still at their highest levels in over five years, and the modest improvement in full-service going-in rates still places them near their historical highs. Rates had been gradually increasing since record lows demonstrated in the 2007 surveys.
Although full-service hotel capitalization rates declined slightly, the direct capitalization rate for limited-service hotels of 11.0% in the current survey is flat to the average for the previous Mid Year 2009 survey.
The complete Winter 2010 survey, including data on capitalization rates, discount rates, income and expense growth expectations, marketing time, debt parameters, and other data for both full-service and limited-service hotels, can be ordered through the company's website at www.usrc.com, and clicking "Publications."
