LOS ANGELES—Los Angeles is one of the top buy markets in the country. Ten-X has named Los Angeles the fourth top buy market, behind Las Vegas, Jacksonville, Sacramento and ahead of Indianapolis. While the hotel market in general is slowing, the Los Angeles market benefits from a strong economy fueling demand for hotel rooms as well as limited hotel supply growth. The city has an 81% occupancy rate that is approaching peak levels, and RevPAR growth is at 10% year-over-over.
The strong performance is creating a strong market for buyers as well as sellers, who are looking capitalize on this performance. “The reason L.A. has a stronger outlook than other markets is because it has a fairly limited supply pipeline on the horizon,” Chris Muoio, senior quantitative strategist at Ten-X, tells GlobeSt.com. “This will help make its next downturn milder than other hotel markets—especially trophy hotel markets—which are facing robust supply pipelines that will further depress occupancies next time demand turns south. LA is also a large, liquid market with global recognition.”
While the market has been named a top buy market, hotel investors won't likely flock to the market. Muoio says that investment strategy will also depend on macro economic trends. “Next year will be interesting as CRE capital markets adjust to interest rates having upside risk,” he says. “This may prompt further selling as the outlook for valuations dims, but could also serve as an impediment to buyers as lending terms tighten.” However, he adds that demand will remain strong through next year. “Our current baseline outlook is for hotel demand to continue rising in 2017 at a moderate pace as the US economic expansion continues,” says Muoio.
The demand levels, however, aren't leading to supply shortages of hotel rooms. “It is interesting that despite operating fundamentals measuring at record levels, development has remained fairly subdued in the metro,” Muoio says. “I am not concerned about supply shortages, however, as home-sharing services such as Airbnb can enable other sources of supply to take advantage of high RevPAR rates and add supply to the market in a dynamic and fluid fashion.”
LOS ANGELES—Los Angeles is one of the top buy markets in the country. Ten-X has named Los Angeles the fourth top buy market, behind Las Vegas, Jacksonville, Sacramento and ahead of Indianapolis. While the hotel market in general is slowing, the Los Angeles market benefits from a strong economy fueling demand for hotel rooms as well as limited hotel supply growth. The city has an 81% occupancy rate that is approaching peak levels, and RevPAR growth is at 10% year-over-over.
The strong performance is creating a strong market for buyers as well as sellers, who are looking capitalize on this performance. “The reason L.A. has a stronger outlook than other markets is because it has a fairly limited supply pipeline on the horizon,” Chris Muoio, senior quantitative strategist at Ten-X, tells GlobeSt.com. “This will help make its next downturn milder than other hotel markets—especially trophy hotel markets—which are facing robust supply pipelines that will further depress occupancies next time demand turns south. LA is also a large, liquid market with global recognition.”
While the market has been named a top buy market, hotel investors won't likely flock to the market. Muoio says that investment strategy will also depend on macro economic trends. “Next year will be interesting as CRE capital markets adjust to interest rates having upside risk,” he says. “This may prompt further selling as the outlook for valuations dims, but could also serve as an impediment to buyers as lending terms tighten.” However, he adds that demand will remain strong through next year. “Our current baseline outlook is for hotel demand to continue rising in 2017 at a moderate pace as the US economic expansion continues,” says Muoio.
The demand levels, however, aren't leading to supply shortages of hotel rooms. “It is interesting that despite operating fundamentals measuring at record levels, development has remained fairly subdued in the metro,” Muoio says. “I am not concerned about supply shortages, however, as home-sharing services such as Airbnb can enable other sources of supply to take advantage of high RevPAR rates and add supply to the market in a dynamic and fluid fashion.”
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