Investors spent less that half as much money buying and selling hotel properties in the first half of 2016 as they did last year.

“Transaction volume nationally is considerably lower,” says Daniel C. Peek, senior managing director and head of the hospitality practice group with capital services provider HFF.

Hotel properties are still trading, and there is reason to hope a larger number of deals will close in 2017. However, for now many of the largest hotel investors are taking their time before they buy. The deals that are getting done this year are single hotel properties bought by private buyers.

“The market today is much more dominated by private equity and private, individual transactions,” says Peek.

Slow start to 2016

Investors bought and sold $12.7 billion in hotel properties in the first half of 2016, down 55 percent from the year before, according to data from New York City-based research firm Real Capital Analytics (RCA). Fewer large transactions have made a big difference. “There haven’t been a lot of trophy transactions,” says Peek. In contrast, hotel investors closed several giant deals in 2015. For example, Hilton sold its Waldorf Astoria hotel, and immediately spent the proceeds on buying other hotel properties from Blackstone.

REITs have been much less eager to buy hotels so far this year. “REITs are out and we definitely feel the impact,” says Kevin Mallory, Sr. managing director with CBRE Hotels.

REIT stocks fell last year after several years of fast growth. That increased the cost of capital for REITs, making them less able to buy properties. “The REITs are decidedly on the sidelines,” says Peek. “They are as focused on buying back shares as buying hotels.”

New construction worries investors

Hotel transactions are also taking longer to close as buyers and lenders both worry how competition from new hotel properties now under construction may affect their properties in the future. “We are exhibiting clear ‘late market’ fundamentals,” says CBRE’s Mallory. “The delta between the demand for hotel rooms and the supply is shrinking.”

Competition from new hotels may limit how quickly owners of existing properties can raise their room rates, despite very strong occupancy rates. That means the average revenue per available room (RevPAR) is unlikely to grow as quickly as in prior years. “We should continue to see positive growth from RevPAR,” says Mallory. “We will bump along to top for a while.”

In the meantime, investors and lenders are taking their time to access how new supply might impact individual properties in the markets where they are active.

More activity for 2017

More hotel deals may come to market in 2017. Private equity funds that bought hotel properties near the start of the recovery in 2012 may now be nearing the end of their typical five-year hold period. Also, hotel properties that took out 10-year CMBS loans back in 2007 are also nearing the end of those 10-year terms. “There is a relatively robust pipeline of transactions—2017 can be a good year,” says Peek.

International investors are also likely to be more active. Chinese firm Anbang Insurance Group has already fueled one of the largest hotel transactions so far this year. The Asian institution bought Strategic Hotels & Resorts, a former hotel REIT that had been converted to a private company by Blackstone Group. The transaction shows off both the primacy of foreign capital and the relatively low stock price of REITs.