CHICAGO - The million dollar question in the hotel transactions market this year is how long the market will be able to maintain its upward trajectory? Slow and steady wins the race, and hotel investors have their eyes on the prize. Jones Lang LaSalle’s newly enhanced Hotel Investor Sentiment Survey[i](HISS)states that hotel performance sentiment is exhibiting steady growth as markets reach pre-recession occupancy levels. The growth can be attributed to more encouraging economic news and employment figures across the Americas.
“Given the increase in operating profits, hotel investors have a notably more positive outlook than they did one year ago,” said Arthur Adler, Managing Director and CEO-Americas of Jones Lang LaSalle’s Hotels & Hospitality Group. “Hotly contested markets like Los Angeles, New York, Miami, Chicago and Philadelphia exhibit the highest ratio of buyers to sellers, and can expect transactions to heat up in the months ahead.”
Investors’ strategies for the next six months show that 55 percent of respondents are primarily pursuing acquisitions, while 28 percent are focusing on selling assets. The prevalence of ‘buy’ activity has increased by an additional ﬁve percentage points from the previous survey in December 2012, illustrating that the transactions market is expected to trend upward.
Across the Americas, investors’ targeted cap rates held steady at an average of 7.6 percent, but are expected to decline slightly during the next six months according to the survey, implying a further uptick in asset values. Leveraged IRR requirements marked a decrease and are now 40 basis points below the most recent three-year average. The survey was conducted before the recent uptick in interest rates; looking ahead, movement in interest rates will be among the factors shaping investors’ return expectations.
“Across the markets surveyed in the region, respondents have the lowest cap rate expectations for Hawaii, San Francisco and New York,” said Lauro Ferroni, Vice President of Research for Jones Lang LaSalle’s Hotels & Hospitality Group. “Philadelphia and Houston rank in the middle of the pack. Investors have among the highest cap rate expectations for Orlando and Phoenix, where demand and occupancy levels are still a bit off from the previous peak.”
Boston and San Francisco rank as top investment target markets with the strongest hotel performance expectations of the cities surveyed. These cities are followed by the major gateway markets such as New York, Hawaii, Los Angeles, Seattle and Miami; see the infographic ranking (L). Driving the performance is increasing corporate and group demand, along with rising levels of international visitors, including those from emerging markets such as Brazil and China which are marking double-digit growth.
“Limited new supply additions across the country will underpin performance expectations in the near-term; however, New York is the exception. Manhattan has the highest new construction pipeline of any major market in the Americas, with nearly 3,000 rooms coming online in 2013,” said Adler. “Despite an increase in new supply, investors still ranked New York among the top ﬁve in terms of outlook expectations, and expect rapid absorption and continued strong top-line performance.”
Jones Lang LaSalle’s Hotels & Hospitality Group serves as the hospitality industry’s global leader in real estate services for luxury, upscale, select-service and budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other hospitality properties. The firm’s more than 265 dedicated hospitality experts partner with investors and owner/operators around the globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last five years, the team completed more transactions than any other hospitality real estate advisor in the world totaling nearly $25 billion, while also completing approximately 4,000 advisory and valuation assignments. The group’s hotels and hospitality specialists provide independent and expert advice to clients, backed by industry-leading research.
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About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $47.7 billion of real estate assets under management.
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