HVS: Price per key to increase through 2016
HVS: Price per key to increase through 2016
23 OCTOBER 2012 7:41 AM

The average sale price per key for the U.S. hotel industry has generally trended upward since 2008, although the pace of recovery varies considerably by market and asset.


REPORT FROM THE U.S.—The average price per key during a hotel transaction for the U.S. hotel industry continues its slow and steady climb, although the pace of growth varies considerably by market and asset.

The average price per key across all segments was $192,000 September year to date—a 1.6% increase from the same period last year, according to STR Analytics, sister company of the Hotel Investment Barometer.

Another analysis from Jones Lang LaSalle Hotels pinned the metric at $170,000 through the first nine months of the year.

  2008 2009 2010 2011 YTD 2012
Average price per key $131,000 $107,000 $177,000 $171,000 $170,000

Source: Jones Lang LaSalle Hotels

A further study from HVS indicates that in hotel sales valued at $10 million or more, the average price per key increased by approximately 15% from $185,000 during 2010 to $214,000 during 2011.

“Price per key is trending up since the downturn in late 2008. However, this is asset- and market-specific,” said Tony Muscio, senior VP at JLLH. “If cash flow is at or near peak levels, this helps in a higher price per key. Other factors to consider are if the hotel is in a major market and would be accretive for a REIT purchase.”

“The composition of the transacted assets is extremely important: key markets versus secondary markets; who has been acquiring these deals,” said Gilda Perez-Alvarado, also senior VP at JLLH. “Private equity drove pricing over the last peak due to highly leveraged acquisitions. Also the type of asset that is being traded—is the asset stable or is it a repositioning opportunity.”

Major urban markets, such as New York, San Francisco, Los Angeles and Washington, D.C., typically hold a premium in price per key, Muscio said.

Of the six most active U.S. states in terms of the number of hotel acquisitions, New York posted the highest average price per key during the first half of 2012, according to the “2012 United States Hotel Valuation Index” conducted by HVS.

The state’s average of $268,831 outpaced California’s $239,165.

“Major markets normally have a bigger investor pool—more competition drives price,” Perez-Alvarado said. “Also, it is important to consider supply trends. Those markets with constrained supply growth or high barriers to entry are pricing at a premium. This is going to become even more important once construction financing becomes more readily available and development activity picks up.”

Discerning trends by chain scale is more difficult, Muscio said.

“There is not (significant increases or decreases) in any particular segment, as it would depend on how the property is performing, where it is located and availability of putting debt on the asset,” he said.

JLLH, however, does compile data for select-service and full-service hotels.

  2008 2009 2010 2011 2012
Select service $107,000 $122,000 $129,000 $124,000 $94,000
Full service $177,000 $96,000 $197,000 $195,000 $225,000

Source: Jones Lang LaSalle Hotels

Future outlook
The next few years will see continued increases in average price per key, according to the HVS study.

“Based on the HVI, U.S. hotel values peaked in 2006 at $100,000 per room. The low point during the recent downturn occurred in 2009, with values dropping to $56,000 per room. We project that U.S. hotel value growth will persist through 2016, surpassing 2006 values by 2013,” according to the report, which was co-authored by Stephen Rushmore, Jr., and Katharina Kuehnle of HVS.

Having peaked in 2011, the pace of growth, however, will continue to slow, the report found.

Looking ahead, secondary markets—led by Tucson, Arizona; Tallahassee, Florida; and Sacramento, California—have the largest upside, as most primary markets have already recovered in value.

Price per key for the U.S. hotel industry on average is expected to increase 38% through 2016.

San Francisco is the only market of the 66 tracked by HVS that is projected to see a decrease in value (-1%) through 2016.

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