IRVINE, CA-Fundamentals in the hospitality industry are strong, with the volume of hotel deals on a healthy post-recession pace following a solid first quarter, according to Auction.com Research, the market-research division of real estate marketplace Auction.com. The division released this week its Quarterly Hotel Monitor, which reviewed hotel occupancies, rates and property transactions to assess the overall health of the hospitality real estate industry and forecast its future.
“The economy looked to be back on a growth track in the first quarter, and hotel revenues have responded accordingly,” said Peter Muoio, head of Auction.com Research and author of the study, in a prepared statement. “With revenues up 1.8% over the previous quarter and 7.1% from a year ago, US hotel-room demand and operating conditions both have resumed a healthy post-recession growth rate.”
The report also revealed that seasonally adjusted US hotel occupancies reached 62.3% in the first quarter, up from 61.9% in the previous quarter, while seasonally adjusted revenue per available room (RevPAR) increased 1.9% in the first quarter. As a result, the study projects 8.8% growth in RevPAR national in 2013.
As supply catches up with demand, the report forecasts that occupancies will likely peak in 2014 or ’15, while rooms rates will continue to gain steam before leveling off in 2016 as occupancies ease off their peak. “These solid conditions in operating fundamentals have been reflected in hotel deal volume and pricing, both of which remained healthy in the first quarter,” Muoio said. “Deal volume slipped slightly from the year-end closing flurry, but was nevertheless up more than 50% from a year ago.”
The study also showed that while the average per-key transaction price of $118,392 in the first quarter was down 4.4% from the previous quarter, it is well above the four-quarter average of $114,293. While the dollar volume of deals was down 25% from fourth-quarter level, the number of properties that changed hands was down more significantly, dropping 81% to 266 deals.
Locally, the hotel market is looking very bright, Chris Muoio, who co-authored the study with Peter, tells GlobeSt.com. “The Orange County hotel market remained strong in the first quarter, as seasonally adjusted rom demand rose 0.9% in the quarter, marking the fifth consecutive quarter of expansion. Occupancies rose to 75.1% due to the increased demand, a rise of 60 bps from the quarter prior and 290 bps from a year ago. Occupancies are now at their highest level since 2005.”
Chris Muoio adds that room-rate expansion in the OC market decelerated to 0.5% in the first quarter, but rose for the 12th consecutive quarter. “Room rates are up 6.2% from a year ago and are now just shy of their prior cyclical peak. RevPAR saw healthy growth of 1.5% in the quarter due to the rise in fundamentals. RevPAR posted a new all-time high in the first quarter and is 10.6% higher than a year ago.”
As GlobeSt.com reported in March, a joint venture between San Diego-based Trigild, Blu Hotel Investors and Pacifica Real Estate Group has acquired the four-story, 121-room Santa Ana Hampton Inn & Suites at 2720 Hotel Terrace Dr. in Santa Ana. While the parties involved declined to disclose a purchase price to GlobeSt.com, Blu’s founder and principal Michael Barnard told us that the price was “well below replacement cost.”