NEW YORK CITY—Thanks to improving economic fundamentals and limited new supply coming on line, the hotel sector is expected to see further growth in its own fundamentals this year, Fitch Ratings says. Added to which, Lodging Econometrics predicts that sales transaction volume for lodging properties will continue growing for at least the next three years.

On the occupancy side, robust demand has provided hotels with material pricing power, says Fitch. The ratings agency is forecasting 6% growth in US RevPAR in 2015, based on a 1% occupancy gain and 5% ADR growth.

Trailing 12-month RevPAR growth has been positive for 54 consecutive months as of February, which is a relatively short time compared to the 112-month recovery that began in the early 1990s, says Fitch. Although the current up cycle appears closer in duration to the 65-month recovery that started in the early 2000s, Fitch expects further RevPAR gains over the next one to three years based on its review of key lodging cycle leading indicators.

Best positioned at the moment are lodging C-Corps, which as a rule enjoy “some late-cycle advantages that should figure more prominently” in the current year, Fitch says. “C-Corps can benefit from increased room systems driven by the incremental supply and they typically earn higher incentive management fees as property cash flows increasingly surpass owners' priority returns.” REITs in the lodging sector, by contrast, “tend to outperform earlier in the cycle due to their relatively high operating and financial leverage and are more sensitive to supply changes.”

And this year will see a change in supply, albeit a relatively modest uptick from the 0.9% growth seen in 2014 and one that's comfortably below the 1.8% average seen in the past 25 years. Fitch notes that pockets of oversupply have emerged in select markets.

For New York City, Houston and Miami, “hotel rooms under construction exceed 8% of the existing room base in each of these markets,” according to the ratings agency. “On balance, rooms under construction exceed 2% of existing rooms in 17 of the top 26 US markets.”

During the year that ended Dec. 31, investment sales in the luxury, upper upscale and upscale chain scales comprised more than 50% of transaction volume for the first time in the current cycle, according to Portsmouth, NH-based LE. Publicly traded REITs in particular were significant purchasers in single-asset deals involving luxury and upper upscale hotels, properties that LE notes “only come to the market during periods of high liquidity.”

However, LE says equity funds were the most active investors in 2014, adding $7.4 billion in hotels, mostly via portfolio purchases. These funds came fairly close to being equally active as sellers, generating $7 billion in sales during the year. In all, last year saw just under $22.1 billion in non-M&A investment sales activity domestically, according to LE.

The most active net sellers during the year, hotel companies traded more than $6.8 billion worth of properties, while buying $4.4 billion, mainly in smaller portfolios and single assets. REITs in the sector invested $6.4 billion, primarily focusing on high-profile single assets divested by privately held hotel companies, while selling just $2.7 billion worth.

The buying and selling are far from over, even as Fitch sees growth in the lodging sector generally beginning to decelerate. LE says it expects transaction volume to intensify, “and selling prices will continue to soar through the expansion phase and into the early part of the maturity phase of the current cycle, probably peaking one to two years ahead of industry profitability in 2018 or 2019.”