Exterior of Clarion Hotel Orlando, where Marcus & Millichap recently brokered the sale of this Clarion Hotel property, is among the markets that have experienced occupancy declines.

CALABASAS, CA—Notwithstanding potential headwinds, the outlook for the hotel sector remains positive amid improving metrics for occupancy and revenues, says Marcus & Millichap. Hotel room demand persists. In the year that ended June 30, investment sales velocity rose about 10% percent nationwide as demand picked up for properties in many of the country’s smaller markets. Even so, the price per key was down slightly on a year-over-year basis. Marcus & Millcihap outs it at slightly less than $100,000, attributing the drop to fewer properties changing hands in upper chain scales.

Conversely, the firm’s latest report on the lodging sector says properties in the lower-tier chain scales drew significant investor interest. “Trades increased considerably for economy and upper midscale assets during the previous four quarters,” according to the report. “Demand for upscale assets held steady with the majority of trades in Marriott and Hilton branded properties.”

Sales velocity also picked up for independent properties during the 12-month period, as buyers broadened their acquisition expectations. Marcus & Millichap predicts that increased demand for soft-brand hotels may further intensify bidding for properties in this sector.

Departing somewhat from previous regional sales patterns, the Carolinas and the Central Midwest region led the nation with transaction volume, followed by the Mid-Atlantic, Mid-South and Southwest. Coastal regions have tended to dominate sales volume in prior years.

Althugh Marcus & Millichap notes that hiring in office-using sectors rose 2.4% in the 12 months that ended June 30, and predicts that “employment growth nationwide and the rising median household income will support travel in the near future,” the firm also sees some clouds on the horizon in the shape of a growing construction pipeline. Texas and California in particular each have more than 20,000 keys that are expected to break ground in the next 12 months. The volume of new supply “may place downward pressure on occupancy, the average daily rate and RevPAR this year and into 2018.”

Bearing out this assessment, Lodging Econometrics reported earlier this month that the US construction pipeline stands at 5,011 projects and a total of 608,837 keys, up 4% by projects and rooms on a year-over-year basis. The counts for projects and rooms under construction—1,592 and 208,523, respectively—stand as the highest recorded this cycle, according to LE.

Meanwhile, LE says that projects in early planning are at 1,221, totaling 149,055 keys. While these projects are up 10% YOY, the properties are smaller, resulting in lower room-counts. “The pipeline continues to grow at a moderate, upward pace and has established a new peak for this cycle,” according to Portsmouth, NH-based LE. The previous cycle peak reached 5,882 projects/785,547 rooms” in the second quarter of 2008.

“Current project counts are 15% below that level while rooms are 22.5% behind,” according to LE. “Any acceleration in the pipeline from its moderate growth rate is likely dependent on the tax plan and other economic measures being discussed in Congress.” Additionally, the firm says projects scheduled to start construction over the next 12 months are down 1% Y-O-Y at 2,198 projects representing 251,259 keys.