HVS ·29 November 2017
A weak energy sector has led to negative lodging fundamentals throughout much of the greater Houston region; however, one destination continues to illustrate its resilience. Galveston Island has realized year-over-year growth in total visitation in each of the past seven years following Hurricane Ike. While the rate of growth has slowed in recent years, no doubt somewhat affected by volatility in the energy sector, positive factors such as the recently completed expansion of the cruise terminal and the low gasoline prices have contributed to the growth in visitation numbers. This article will explore tourism trends on Galveston Island. Galveston Island is a 64-square-mile barrier island located 50 miles southeast of Houston. With 32 miles of beaches, a variety of historic neighborhoods, ample leisure attractions, and a multitude of festivals, the tourism industry remains a mainstay of the local economy. The relative affordability of the island, and the proximity to and size of the Houston metropolitan area contribute to the strength of this industry.Tourism TrendsIn 2016, Galveston welcomed 6.5 million visitors, increasing for the seventh consecutive year. Tourism developments, such as new hotel supply and increased cruise-passenger capacity, have fueled this economic expansion. The following table illustrates total visitation for Galveston Island since 2008.Unemployment trends can provide additional perspective on the overall economic health of the city. As illustrated in the following table, after strengthening from 2012 through 2015, economic headwinds in the energy sector likely contributed to a slight uptick in unemployment in 2016. However, recent data illustrate a positive trend, with unemployment in July 2017 down 50 basis points from the prior year.According to the Galveston Park Board of Trustees, the July 4th holiday weekend saw a material improvement over the prior year, with occupancy up almost 15% and average daily rate (ADR) up nearly $20. Good weather and special events were cited as contributing factors. Other major factors that have contributed to the continued strengthening of the tourism industry include low gasoline prices (Galveston is primarily a drive-to market) and increased cruise-ship calls and passenger numbers. The Port of Galveston ranks fourth among all U.S. cruise ports, according to the most recent study completed by Cruise Lines International Association. Carnival Cruise Lines and Royal Caribbean International are the two primary cruise lines operating out of Galveston, both of which have increased their presence in recent years. The Port completed a $10-million, 60,000-square-foot expansion of Terminal No. 2 in 2016. The expansion was part of an agreement with Royal Caribbean International to accommodate larger cruise ships, such as Liberty of the Seas, which began sailing from Galveston in late 2015. Decreased competition from the nearby Port of Houston cruise terminal in Pasadena, which closed in 2016 after only opening in late 2013, has contributed to the strengthening passenger numbers at the Port of Galveston. The following table shows the cruise-ship calls and total passenger numbers for the Port of Galveston since 2007.The potential addition of a third terminal and an additional sailing by Carnival Cruise Line (scheduled to begin in September 2018) are expected to bolster visitation numbers and hotel performance in the coming years, as many cruise passengers typically spend the night prior to their departure and after their return in Galveston.Hotel DevelopmentsNew hotel supply continues to open in Galveston, although the percentage increase in new supply remains low relative to the national average given Galveston's high barriers to entry. New hotel openings in 2016 included a 60-room Americas Best Value Inn and a 96-room Best Western Plus, while an 88-room Homewood Suites by Hilton opened in 2017. This new supply should be quickly absorbed given the strength of the leisure segment in Galveston, bolstered by a $48-million beach-nourishment project that was completed in 2016, as well as by recently completed expansion and renovation projects at major attractions such as Schlitterbahn Galveston Island and Moody Gardens.Hurricane HarveyIn late August, Hurricane Harvey struck the Texas Coast and caused wide-spread damage from North Padre Island to Houston. Galveston was affected with flooding; however, the damage was considerably less than that caused by Hurricane Ike, specifically related to commercial property damage. No major closures of hotel properties were reported, and the beaches and tourism attractions were reopened in time for the Labor Day holiday. However, the Port of Galveston reports that five cruises were canceled due to the storm. While the long-term effect of the considerable damage suffered by residents of Houston, Galveston's main feeder market, is likely to have some affect on Galveston, the Island remains a popular, relatively low-cost option for discretionary income spending.ConclusionDespite the depressed energy sector, the lodging fundamentals on Galveston Island remain sound. A favorable supply pipeline, continued public and private development, and increased cruise-ship calls should bolster performance in the near term. Potential increased cruise competition from developments in South Texas and city regulations on hotel development along the seawall are possible issues of which developers and owners should remain watchful. Galveston is a city and community that has weathered many storms in its long history, and it continues to emerge stronger and better. Given the continued investment in and advancement of the tourism industry, coupled with economic mainstays such as healthcare and education, the outlook for this resilient Texas town is positive. Proper due diligence should prepare hotel stakeholders to find niches in the market and maximize hotel profitability.
HVS ·23 November 2017
El Segundo, a city located to the south of LAX, has become known for its business-friendly environment because of its proximity to the airport and Interstates 105 and 405. El Segundo is home to numerous Fortune 500 corporate headquarters, local companies, and government organizations. Although the city's population is approximately 16,900 (U.S. Census 2013 estimate), over 85,000 employees commute to the area every day. Major employers in the market include Northrop Grumman, SpaceX, Mattel, Gartner Inc., Raytheon, Boeing, Ricoh USA, Chevron, and the LA Air Force Base, which all contribute to hotel room-night demand.Major Developments Support Growing Demand LevelsSeveral developments are underway in the market, as well as throughout the greater Los Angeles area, that are expected to support growth in tourism and hotel demand in the future.City of Champions Stadium: The Rams NFL football team made their triumphant return to Los Angeles for the 2016 season, and the San Diego Chargers joined the Rams for the 2017 season at the Los Angeles Memorial Coliseum. In 2020, the two teams will share the new, $2.6-billion "City of Champions Stadium," now under construction in Inglewood.Developments at LAX: The $14-billion capital improvement program at LAX, which began in 2006, includes over 20 projects and is considered the largest public-works program in the history of Los Angeles. The centerpiece of the program is the new Tom Bradley International Terminal, which opened in 2013. More recently, the renovated, $229-million Terminal 5 opened in June 2015, and in July 2016, Delta Air Lines announced its $1.9-billion plan to modernize, upgrade, and connect Terminals 2, 3, and the north side of the Tom Bradley International Terminal. These upgrades will coincide with the largest project in the program, the Landside Access Modernization Program (LAMP), which will feature a 2.25-mile Automated People Mover (ACM) that will connect to a Consolidated Rent-a-Car Center (ConRAC), two Intermodal Transportation Facilities, and the Aviation/96th Street Metro stop.Metro Crenshaw/LAX Line: The 8.5-mile Crenshaw/LAX Line is currently under construction and will connect the Green Line to the Expo Line. The line is slated for completion in 2019, but will achieve its full traffic-reducing potential in 2023 when the Aviation/96th Street Metro stop is connected to the LAX ACM. This will be the first time that airport passengers will be able to access the terminals without relying on a vehicle or bus.More to Come in Los Angeles: Other major projects anticipated to support growing airport and hotel demand levels include the planned expansion of the Los Angeles Convention Center, the 2028 Olympics, and the new Los Angeles Football Club (LACF) soccer stadium in Exposition Park.Hotel LandscapeLodging facilities are a critical component of an airport's success. Guestrooms for transient visitors, distressed passengers, and airline crews support the popularity of an airport destination. The LAX/El Segundo market is well supported by a diverse array of over 30 hotel lodging facilities, ranging from economy, limited-service hotels to first-class, full-service hotels.New SupplyThe sheer volume of passenger traffic traveling through LAX bodes well for hotels in the immediate market. In response to recent robust occupancy levels and the positive outlook for passenger volume, several hotels have opened in the market in the last five years, and more are in various stages of planning and construction.According to projections by the Southern California Association of Governments, LAX could reach over 100 million passengers annually by 2040. As a result, hoteliers in the market expect supply additions to be quickly absorbed.Transient Occupancy Taxes and Hotel PerformanceHistorical transient occupancy tax (TOT) collections illustrate the increased demand for hotels in the markets surrounding LAX. As an example, the following table outlines historical TOT collections for the City of El Segundo, which has a current tax level at 12%, one of the lowest in Los Angeles County.In 2015, TOT collections declined following the closure of the 600-room Hacienda Hotel. The property was converted to the recently opened dual-branded Aloft and Fairfield Inn by Marriott. As a result, TOT collections rebounded significantly by the year-end 2016; moreover, the City has forecast a 26% increase in TOT collections in 2017 given the recent additions of the Hampton Inn & Suites by Hilton and the Cambria Suites.Our HVS database of hotels within El Segundo and the Century Boulevard Corridor illustrate that occupancy neared 90% by year-end 2016, while average rate registered in the low $160's range, resulting in an 11% change in RevPAR over the prior year. This impressive RevPAR growth marked the third consecutive year of double-digit growth in RevPAR. This trend has continued in the year-to-date period, albeit at a more moderate pace, with RevPAR increasing nearly $4, a 3% gain over the same period in the prior year. Increased passenger volume and strong lodging demand from local companies should continue to support the high occupancy levels in the market and, therefore, increase transient occupancy tax collections.Hotel TransactionsThe diverse demand generators, numerous developments, and strong hotel performance have drawn investors to seek hotels in the LAX/El Segundo market. The following table sets forth hotel transactions in the LAX/El Segundo market since 2012.Since 2012, over $656 million in assets have traded hands in the markets surrounding LAX. Notably, the Belamar Hotel transacted twice within three years, appreciating nearly 83% during that period. The appetite to own an asset in this market continues to be high, considering the consistent demand levels and robust hotel performance.Outlook: The market has hit cruising altitude and is still risingA well-developed transportation infrastructure, including one of the nation's busiest international airports, should contribute to this market's continued strength and expansion. The breadth of companies in the LAX/El Segundo area, Los Angeles' reputation as a leisure destination, and the developments at LAX are expected to support continued growth in lodging demand; thus, the lodging market should continue to soar.
HVS ·22 November 2017
While last year's CHICOS experienced a similar "buzz" because of its November date, just one day after the U.S. presidential elections results were announced, the hot topics of last year regarding the impact of the election and, more notably, the impact of the Zika virus, were virtually unmentioned just one year later. Less predictable than its neighboring U.S. hotel market, the Caribbean hotel market is ever changing and keeping hoteliers on their toes. The 2016 CHICOS was neutral to slightly positive in tone; however, the 2017 CHICOS sentiment was markedly more positive despite the new challenges that have developed. Seemingly unbothered, industry leaders agreed that to be able to stomach events like Zika and hurricanes, investors must be in it for the long haul; not for the faint-of-heart, where some stakeholders wane in the face of uncertainty associated with a dynamic market such as the Caribbean, but the risk/reward stakes are raised for those with patient money. A few key takeaways from this year's conference are presented below.Despite the intense hurricane season, hotel owners and operators have a positive outlook on the future of the Caribbean region given its resiliency.While the impact and conversation surrounding the mosquito-borne Zika virus continued to decline through 2017, the Caribbean was fraught with a new challenge: the record-breaking 2017 Atlantic hurricane season. While both Hurricane Irma and Maria devastated certain islands and many iconic resorts in the region, speakers wanted to get the message out to both visitors and investors that the Caribbean is open for business. Of 32 island nations, just seven were significantly affected (three quite severely). Leaders emphasized the importance of educating the public on the geography of the region and that each island is unique and should be marketed individually. The notion that the entire Caribbean region was devastated is incorrect, as more than 75% of the region was unaffected by the hurricanes but by the immediate wave of cancelations and bookings, leaving hotel rooms unoccupied and inbound revenue absent. However, on the positive side for the affected resorts, insurance funds will provide hotel owners the opportunity to carry out capital expenditures, modernize, and renovate while they are closed. Given the pipeline of new projects in the Caribbean, these resorts will reopen in better condition and be more market competitive than previously. Despite the challenges primarily associated with Zika perceptions in 2016, RevPAR increased in every month for six months leading up to September. Increases were registered across most metrics, including overall visitor arrivals, total revenue, demand, supply, occupancy, ADR, and RevPAR.We delve deeper into this topic in The Impact of the September 2017 Hurricanes on the Islands of the Caribbean.Increased visitor arrivals and the robust development pipeline has notably shifted focus to the all-inclusive product.Continued increases in airlift and demand have provided developers with opportunities for new projects in the islands. Construction is taking place in almost every major island and, per STR, construction is up 25% from 2016, with 43% of this new inventory in the luxury tier. Not surprisingly, some of the region's most populous island nations, the Dominican Republic and Jamaica, dominate the 2017 development pipeline with all-inclusive resort development given the value proposition associated with these resorts. The all-inclusive inventory continues to grow with the recent openings of a 454-room Riu in Montego Bay, a 457-room Secrets in Cap Cana, and a 150-room Breathless in Montego Bay, as well as the recent announcements from Karisma Hotels on the development of 500 rooms in Cap Cana, from Playa Hotels regarding the development of 750 rooms in Cap Cana, and from AMResorts on the development of 600 rooms in Punta Cana. However, despite the continued boom in the all-inclusive segment, many industry leaders also see an opportunity to build in the select-service and midscale space given recent consumer preferences trending to the select-service segment and the lack of this inventory on many of the islands. Furthermore, the increasing presence of low-cost airlines opens Caribbean travel to a wider customer base.Additionally, continuing with the theme of new supply and changing consumer preferences, one of the most notable panels included representatives from Airbnb and Expedia, and although hoteliers may oftentimes see them as the enemy, they are options that customers chose as part of their overall travel experience. Despite that Airbnb is competition, per Shawn Sullivan, Public Policy, Caribbean and Latin America Airbnb, Airbnb recently included boutique hotels in their booking platform, providing this option to boutique hoteliers to sell their inventory. And per Hari Nair, Global Senior Vice President Expedia Media Solutions, Expedia sees itself as a technology company that provides consumers with a hotel marketplace and access to customer reviews. But what was clear from this panel is that both companies are focusing their efforts on taking care of the consumers entire experience, making memories for the customers, and using technology to do so in a way that customers can choose the booking mechanism that works best for their travel needs.The Caribbean hotel financing landscape is maturing, and capital is available through creative financing for sponsors if key criteria are met.While conventional lending from regional banks continues to be limited, the region experienced significant increases in lending activity and capital infusion from alternative sources in 2017, particularly from institutional equity sources for power-play deals, such as KSL and KKR's acquisition of Apple Leisure Group/AM Resorts and the Playa Hotels & Resorts merger. High-net-worth individuals and increasing interest from foreign investment from Asia and the Middle East are also factors at play. Our Financiers' Outlook panel, consisting of capital providers active in the region, noted higher confidence levels this year over last year, despite recent events coupled with the late stage of the real estate cycle. The Caribbean hotel financing landscape continues to mature, evidenced by several factors. In addition to unprecedented levels of institutional equity capital for major projects in 2017, the Caribbean is experiencing a robust pipeline and healthy levels of transactions (i.e., increased liquidity), as well as improved market performance fueled by the growth of feeder markets, and capital markets continue to remain rational, with sponsors bringing significant equity to the table when seeking debt. Because of the risks inherent to Caribbean hotel investment, financiers advise that investors must ensure that several important criteria are met to succeed in acquiring financing. Strong sponsorship, location, and airlift capacity are key, and branded hotels are more apt to receive funding than independent ones. Other considerations include the impact of new supply, competency of property management, availability of labor, and a strong overall business plan.ConclusionThe resiliency of the Caribbean hotel market has been demonstrated particularly well over the last few years. The negative impact of Zika is largely over, as market hotel performance metrics exhibited consistent improvement beginning in the first quarter of 2017. While the region has more recently been challenged by an atypically hyperactive Atlantic hurricane season, affected hoteliers expect to come out of it better off, as aging product is forced to undergo renovations. Meanwhile, the pipeline is robust (particularly in the all-inclusive segment), transaction activity is healthy, and the lending environment has been more active and consistent in 2017 than in years past. From both an investment and visitation standpoint, the Caribbean is open for business.
HVS ·22 November 2017
The City of Raleigh, also known as the City of Oaks, is the capital of North Carolina, the seat of Wake County, and one of the most economically diverse cities in the state. The capital city has long been known for its high standard of living and skilled industries, which has made it one of the fastest growing cities in the southeastern United States. According to recent data reported by the U.S. Census Bureau, the state of North Carolina, as a whole, was the sixth-fastest-growing state in the U.S. from 2015 to 2016. Raleigh was also named in the top twelve destinations to travel to in 2017 by Forbes Travel Guide, sharing the ranks with destinations such as Oahu, Lisbon, Santa Barbara, and Bali. This growth has helped to bolster an already strong hotel and tourism industry in Raleigh.Economic DriversThe economic base is diverse in Raleigh, with strong employers in the government sector and the healthcare, finance, and technology fields. Major employers in the Raleigh area include IBM, Citrix, WakeMed Health & Hospitals, North Carolina State University, Cisco Systems, SAS Institute, and Duke Energy, among many others. Companies headquartered in Raleigh include BB&T Insurance Services, Carquest, First Citizens Bank, Golden Corral, and Red Hat. The city is best known for the Research Triangle Park (RTP), the largest research park in the country. Located between Raleigh and neighboring Durham, RTP is home to over 200 companies (including IBM, Cisco Systems, and GlaxoSmithKline) and employs over 50,000 workers. The local economy is also strongly influenced by the presence of world-class educational facilities, such as North Carolina State University (NCSU), the University of North Carolina at Chapel Hill, and Duke University. The universities provide a steady supply of highly skilled, young professionals that help to make Raleigh an ideal location for employers. Downtown is realizing some of the strongest growth in the market. The GoRaleigh Transit Station was recently renovated and expanded in 2017, and Union Station, the city's multi-modal transit center, is set to be fully operational in 2018. Numerous mixed-use developments are under construction or are starting construction soon, including the 2.5-acre The Dillon, One and Two Glenwood, 400H, and the two-tower City Centre. When Raleigh's Yadkin Bank was acquired by First National Bank, FNB announced it would build a new 22-story tower in Downtown Raleigh for its regional headquarters. Moore Square park on the east side of Downtown will be closed and completely renovated in 2018, to become one of the area's premier public spaces. Finally, Downtown Raleigh continues to realize significant residential growth, including luxury apartments at SkyHouse, rowhomes at Hargett Place, and townhomes at The Ware, among many others. Rebuilding will begin soon on the Metropolitan Apartments, which were under construction in early 2017 when they were destroyed by a five-alarm fire. A major storyline in Raleigh and the state of North Carolina in 2016 was the March passage of the controversial Public Facilities Privacy and Security Act, also commonly known as House Bill 2 (HB2) or the Bathroom Bill. The legislation was immediately met with public outcry as advocates for the bill's repeal challenged the element of the law that eliminates anti-discrimination protections for members of the LGBT community. While other cities across the state were also affected by the passage of the bill, as the state capital, Raleigh was at the heart of controversy and felt the effects of the public uproar on multiple fronts. Economists estimate that the state lost between $450 million and $630 million because of the passage of the legislation, from business relocation and expansion interruptions, loss of large meeting and group events, curtailed visitation and lodging revenues, and the relocation or cancelation of numerous concerts and sporting events. In March 2017, officials enacted House Bill 142 (HB142), compromise legislation that repealed and replaced HB2. With this repeal, Raleigh and the state can begin to repair the damage to their reputation and economy.Current Hotel SupplyThe Raleigh hotel market is divided into several different submarkets that have individual demand generators and guest profiles. The main hotel submarkets include:Hotel demand in each individual submarket is largely driven based on the proximate location to a variety of economic and leisure demand generators. However, given the city's relatively compact size and ease of access through the area, competition between submarkets does overlap quite a bit. In 2015 and 2016, five properties opened in the Raleigh hotel market, including two properties in Brier Creek, one in the Crabtree Valley area, and Aloft hotels near Downtown Raleigh in the University area and in Brier Creek. According to local market participants, the new supply was quickly absorbed by the market. In the year-to-date period through October 2017, three long-anticipated hotels opened: the AC Hotel by Marriott North Hills in March, the Residence Inn by Marriott Downtown in July, and The Stateview - Autograph Collection on the Centennial Campus of North Carolina State University in October. In addition, the Fairfield Inn & Suites by Marriott Raleigh North opened in October at the intersection of Capital Boulevard and Interstate 540, across from the Triangle Town Center. Initial data reflect that the AC Hotel and the Residence Inn by Marriott are also being quickly absorbed by the market. In addition, three hotels in Crabtree Valley underwent comprehensive renovations to public and guest spaces in 2016, including the Marriott, Embassy Suites by Hilton, and Holiday Inn. While occupancy levels at these hotels were negatively affected during the process, they are ramping back up quickly, and management should be able to drive strong average daily rate (ADR) growth given their significantly improved products.New Hotel SupplyAccording to the Greater Raleigh Convention and Visitors Bureau, numerous new hotels are currently planned for Wake County over the next several years, with several properties currently in some stage of construction as of November 2017. In Brier Creek, a Hyatt House is set to open in January 2018, while a Holiday Inn Express is under construction, although an opening date has yet to be confirmed. In Cary, a Homewood Suites by Hilton is scheduled to open in May 2018, and construction recently began on a Courtyard by Marriott. Just east of Raleigh, a Hampton Inn & Suites by Hilton is slated to open in December 2017 in Knightdale. Meanwhile, two new Hilton products, a Home2 Suites by Hilton and a Tru by Hilton, are proposed for the airport submarket; however, opening dates are unknown for both projects. Additionally, Marriott has announced several new projects in Raleigh, including a Westin in the Crabtree Valley area, and two Element properties, scheduled for the RTP/Brier Creek area and Downtown Raleigh. The Downtown market has several other properties planned or rumored for future development. Construction of a dual-branded Hilton Garden Inn/Homewood Suites property is scheduled to start in the first quarter of 2018, with approximately 15 months planned for construction. A regional developer purchased a site immediately north of the Raleigh Convention Center and plans to build a Courtyard by Marriott, which will likely open in 2020. Finally, two of Downtown's new mixed-use developments, Two Glenwood and City Centre, are anticipated to include a hotel component, although details of these projects are still being finalized. The construction of hotels in Downtown Raleigh is expected to help boost future meeting and group demand with increased bookings at the Raleigh Convention Center; the Greater Raleigh Convention and Visitors Bureau should be able to bid on an increasing number of larger events, which it has previously had to turn away given the limited hotel supply within walking or shuttle distance of the center.Hotel Market DemandWake County's lodging market continues its strong performance and remains one of the top markets in the state. Countywide occupancy has grown each year since 2009. In 2016, Wake County realized an occupancy level over 70% for the first time since 1997, which is five percentage points higher than the statewide average. Occupancy in the City of Raleigh reached just beyond the county average, at 69%. ADR continued to improve each year, as well, remaining slightly above the average for the state in 2016; countywide ADR increased approximately $4.00 from 2015. Downtown Raleigh is one of the strongest submarkets, with ADR and RevPAR levels approximately $20 higher than the average for the City of Raleigh. We expect Raleigh to continue to realize robust RevPAR growth through the future because of its strong economic base, continued increasing popularity as a destination, and status as the state capital. Given the recent and ongoing increase in lodging supply, average occupancies should decline slightly in the near term, but demand should continue to grow, and the new supply should be absorbed relatively quickly. Hoteliers believe the greatest opportunity for RevPAR gains is through ADR growth given the introduction of high-rated supply and significant improvements at numerous hotels in the market.ConclusionRaleigh's economy and lodging industry continues to realize strong growth, as the area remains a premier destination for business and tourism. Hotel development should continue through the near future, and the new supply should be absorbed relatively quickly given the improving demand levels. Further revenue growth is anticipated through higher average rates due to the significant renovations of several properties in the market and the positioning of the new supply that is entering the market. http://www.forbes.com/sites/forbestravelguide/2017/01/23/forbes-travel-guides-12-top-destinations-of-2017/
HVS ·21 November 2017
If you would like a detailed hotel performance data for all of Canada, STR offers their Canadian Hotel Review. The Canadian Hotel Review is available by annual subscription. For further Information, please contact: email@example.com +1 (615) 824-8664 ext. 3504.
HVS ·16 November 2017
The primary drivers of the Las Vegas economy are tourism, gaming, and conventions, which in turn feed the retail and restaurant sectors. Las Vegas' economic base continues to diversify into sectors such as manufacturing, distribution, wholesale trade, and construction. Nevada's favorable tax structure for individuals and corporations provides the impetus for corporate in-migration. While these sectors have emerged within Las Vegas, the area's driving force is, and will continue to be, tourism. Las Vegas normally enjoys high tourism levels year-round given its marketing as a tourist destination and desert-like climate. Demand is generally strongest during key weekends and special events. Las Vegas' new National Hockey League franchise will play home games at the recently opened T-Mobile Arena. Plans for development of the stadium for the National Football League's Oakland Raiders franchise continues to move ahead. In addition, many of the city's iconic hotels and casinos have recently undergone renovations, and development continues on the Resorts World Las Vegas casino, which is scheduled to open in 2020, and other projects.This article examines trends affecting the dynamics of the Las Vegas hospitality market. Click here to request a complimentary report
HVS ·15 November 2017
With the pace of new supply growth accelerating, owners of existing hotels are increasingly concerned as to how their properties will fare in a more competitive market. As brands continually add new product types to fill a niche, hotel operators are becoming more aware of the potential threats from within their brand family. From Vib and GLo, which are part of the Best Western family, to Tru by Hilton and Marriott's Moxy brand, hotel companies are introducing new product and revamping their brands' design prototypes, such as the Formula Blue initiative for the Holiday Inn Express, which reflects a new contemporary design. The merger of hotel companies also has owners questioning the future of their properties, such as the Marriott/Starwood merger and InterContinental Hotels Group acquisition of Kimpton Hotels.The hospitality industry recognizes two types of impact: base and incremental. Base impact refers to the effect of any new hotel rooms in the lodging market on an existing hotel. Incremental impact arises from the shared brand affiliation, which comprises a common reservation system, website, national marketing programs, frequent guest programs, and similar brand recognition. Impact is most commonly measured in terms of occupancy; however, average daily rate (ADR) should also be considered, particularly when assessing incremental impact, as demand driven by the branded reservation system and frequent guest program often achieves a proportionately higher ADR.In assessing impact, consideration must be given to the following issues:Economic Conditions: focusing particularly on the outlook for future growth or decline that would affect lodging demand in the market areaDemand: including an assessment of key demand generators in the market and for the existing hotelSupply: including an assessment of the existing competitive supply and the timing and likelihood of additions to the competitive supplyFacilities: of both the existing hotel and the development program for the proposed hotelLocation: of both properties, focusing on proximity to major concentrations of business activity, demand generators, and major transportation routesMarket Orientation: of the existing hotel and anticipated market orientation of the proposed hotelDevelopers need to look at the impact that a proposed hotel will have on the existing supply in a market during their initial due-diligence phase. In addition to a possible decrease in occupancy with the entrance of new supply, it's important to look at how it will affect average rate, particularly if the proposed hotel will share the same parent company with an existing hotel in the market, even if it will not be 100% competitive, such as a straightforward limited-service hotel versus a limited-service, extended-stay hotel. Often, corporations have a contract in place with a particular parent company, such as Marriott or Hilton, where they may have negotiated rates at a full-service, select-service, and limited-service hotel (under that parent company) all within the same market; as such, their employees may select to stay at any of these hotels, making hotels under the same affiliation more competitive than others (under a different parent company) with a similar product offering entering the market. On the other hand, hotels located within markets that rely heavily on interstate travelers, or those located near a military installation, may not be as affected as the hotels that rely heavily on corporate demand generators. In many instances, new supply will increase market-wide average rate; however, for hotels under the same ownership, or competing directly with the new hotel, hoteliers will often decrease their ADR to maintain occupancy and to be more competitive with the new product.HVS takes an in-depth look at the market and the supply and demand changes over the past ten years and analyzes the impact that new supply will have on a particular property. It's important for developers to contact their parent companies and see what they will accept. Some parent companies hire a third party, like HVS, to conduct an impact study, while other parent companies evaluate this in-house. Each parent company has its own guidance for how much impact is considered too much on an existing property, but it is also important to note that each market is different; thus, while new supply can be detrimental to a particular hotel in one market, other markets can quickly absorb the new supply and continue to thrive, and while the base demand may be affected, the incremental demand may not, at least not to the same degree.
HVS ·14 November 2017
Economic Outlook - Baring political and geopolitical uncertainty, the economy is anticipated to continue to expand by 2.5% to 3.0% annually for the next two years.Lodging Fundamentals - Demand continues to outpace supply, a relationship that is forecast to change in 2018.New Supply - The supply pipeline continues to grow, but remains well below the peak set in 2008. Brand Growth - Brand companies continue to look for opportunities to increase scale in order to provide consumers with more options, which present both opportunities for new development and concerns over market saturation for owners and developers.Lifestyle Semantics - With the growing proliferation of "lifestyle" brands, one of the breakout sessions aimed to define what exactly is lifestyle. While no universal definition was reached, the most compelling argument came from John Cohlan, CEO of Margaritaville Hotels, who contended that to truly be a lifestyle hotel, the consumer has to have a preconceived idea of what experience to expect before showing up to the property. This is most easily achieved by new "lifestyle" brands that have other business lines beyond hospitality. Natural Disasters - Hurricanes, floods, and fires have impacted hotels across the country in the last several months. Owners in affected areas will need to manage short-term increases to labor and material costs throughout rebuilding, and long-term increases to insurance costs.Valuation Factors - Rising interest rates are a concern for investors; however, the more substantial factor influencing valuation and closing transactions is the substantial PIP requirement that is becoming more common place.
HVS ·10 November 2017
Targeting future audiences is a longstanding marketing strategy, and that's exactly what the casual dining restaurant industry is doing in a current effort to survive. Cracker Barrel's Holler and Dash, is a new chain with a fast-casual concept built around fresh-baked biscuits. With bare-brick walls and concrete floors, H&D is targeting a younger demographic than its parent chain.This is part of an industry-wide shift by outdated restaurant chains to reinvent themselves, by creating "offshoot" brands under a new name and image that are aimed at Millennials and younger diners.Downward DriftA casual dining industry analysis shows that during 2016 the sector experienced more rapidly declining sales and traffic than others. Although the slipping sales have been attributed to everything from the weather to politics, the fact is the industry has seen a downward trend in growth since the beginning of 2015.The impact has been most significant for chain restaurants, which have been hard-pressed to close venues and lay off staff as the trend continued. Meanwhile, quick service restaurants, fine dining and upscale casual venues have all been in positive territory over the same period.Incorporating New TrendsFor restaurant venues setting out to conceptualize a new image, new casual dining industry trends worth incorporating are:Free wifi: 80% of Millennials have used free wifi in a restaurant in the past year, making this the highest-ranking consumer trend according to the National Restaurant Association.Local food: 56% of consumers prefer food locally sourced from farmers and producers in their own community.Saving the planet: 60% of consumers make restaurant choices based on the serving of environmentally-friendly food.Combine these options with the streamlined service of the fast-casual environment, and the entire industry undergoes a metamorphosis.Statistics Worth NotingWith total restaurant sales projected to reach almost $800 billion by the end of the year, feeding people now accounts for 4 percent of the U.S. GDP. Casual dining industry statistics showed franchise restaurants are the most common of all restaurant types, comprising one third of all venues in the U.S.A report from Restaurant.org shows consumers are increasingly looking for healthier meals, with 70 percent likely to visit venues that offer locally-sourced foods. Diners also want dynamic options beyond the basic burger-and-fries, with 25 percent stating they wanted to try unconventional cuisine.Keeping Market ShareIn spite of the declining levels of the casual dining market share, restaurant brands in this space would do well to focus on three critical areas in their efforts to remain relevant. These are:Innovative menu planning, which meets demand for healthier options based on locally-sourced produce.Improved service, delivered by competent, trained staff. Since part of the casual dining value proposition continues to include full service, companies will need to continue investing in service that is exceptional, for patrons to accept higher price points.The use of technology to streamline and automate processes, especially client-facing ones. Statistics show more than 70 percent of diners presented with tablets for ordering purposes used them, and were impressed by the chance to do so.There's no question the casual dining restaurant industry is currently going through some changes, but with careful planning and innovation a new version may rise and take advantage of the huge numbers of younger diners looking to enjoy eating out.
HVS · 9 November 2017
The following HVS Market Pulse report provides a look at the key industries, economy, hotel demand generators, and recent performance dynamics of the hotel industry in Indianapolis.Key Industries and Business DevelopmentIndianapolis remains one of the largest bio-medical and pharmaceutical hubs in the United States. In fact, according to a recent industry report from BioCrossroads, Indiana's life sciences exports totaled $9.8 billion, the second highest in the U.S. For example, Eli Lilly and Company, which was founded in Indianapolis in 1876, has grown to become one of the top-ten-largest pharmaceutical companies in the world. Eli Lilly recently completed an 80,000-square-foot expansion of its insulin-manufacturing plant in Indianapolis; the $140-million investment added 100 new high-paying jobs in 2015. Most recently, company officials announced in March 2017 that the firm would invest $850 million in its U.S. operations, including $85 million for a new manufacturing facility in Indianapolis. Other notable biomedical and pharmaceutical companies in Indianapolis include Roche Diagnostics, Anthem, Apria Healthcare, Endocyte, Harlan Laboratories, ImmuneWorks, and The Medicines Company.Located on the east bank of the White River in Downtown Indianapolis, Indiana University-Purdue University Indianapolis (IUPUI) enrolls over 30,000 students and collects millions of dollars in research funds for its medical, nursing, and dental schools. The campus is part of the economic triangle that links Bloomington and West Lafayette to Indianapolis. The 1.3-million-square-foot Eskenazi Health complex opened on IUPUI's campus in December 2013; the $754-million facility includes a 315-bed hospital with 19 operating rooms, 12 labor and delivery rooms, a 90-bed emergency department, and an Adult Level I Trauma Center. In addition, Indiana University Health is in the process of developing a new $1-billion medical center at 16th Street and Capitol Avenue as part of a major project that will tear down two century-old buildings, while renovating the middle part of the hospital. Moreover, the "16 Tech" economic development initiative is currently underway in Downtown Indianapolis to establish a master-planned development near Downtown, the IUPUI campus, and the Indiana University School of Medicine. The project is intended to attract research firms, contract service providers, and high-tech companies in industries including information technology, health information technology, motorsports, biotechnology, and clean energy. Additionally, Indiana has more manufacturing jobs per capita than any other state, and Central Indiana is a leader in engineering electric car and truck components. A major area employer in this industry, Rolls-Royce, opened a $42-million advanced aerospace production and repair facility in March 2015, and it is currently undergoing a five-year, $600-million renovation to its Indianapolis facilities. Indianapolis is also home to major operations of Allison Transmission, United Technologies Carrier Corporation, The Adidas Group, and Raytheon Technical Services. In August 2016, Raytheon was awarded a $92-million contract for development of the Enterprise Air Surveillance Radar (EASR), with contract options that could increase the value of the project to $723 million by completion. Moreover, given its central U.S. location, the city serves as a major distribution and logistics hub. Further boosting its profile, Interstate 69 will be extended north from Evansville by mid-year 2018, connecting to Interstate 74/465 at State Highway 37 in South Indianapolis, and eventually opening a direct trade route stretching from Canada to Mexico. Joining major distribution operations of FedEx, Toyota Motor Corporation, PepsiCo, DHL, and Amazon.com, Walmart.com and Tempur Sealy International recently opened large new distribution facilities in Plainfield, creating over 600 new jobs since 2015. In addition, John Morrell Food Group recently opened a new $43.5-million distribution center in the Access 70 Business Park, which created over 250 additional new jobs in 2016. Lastly, UPS recently announced its intentions to build a $260-million new logistics hub in Plainfield that will create as many as 578 jobs by the end of 2023. Indianapolis's diverse economy, united with its growing retail and residential sectors, low cost of living, and attractive business climate, continue to boost its profile as a top choice for corporate relocation and expansion.Downtown ExpansionIndianapolis's well-balanced economic base has allowed its economy to weather the recession better than most Midwest and secondary markets. A short downturn has been followed by years of economic growth and revitalization. Furthermore, downtown development continues to pick up momentum, led by the technology sector, with an anticipated $2.8 billion in investments planned through 2022, and 1.2 million of commercial space to be renovated or added by year-end 2018. Most notably, Salesforce.com Inc. relocated to the former 950,000-square-foot, 48-story Chase Tower (now Salesforce Tower) in 2016 to consolidate its operations in 400,000 square feet of space, creating 800 new staff positions by 2021, adding an additional 500 apprentice positions by 2020, and investing $40 million over ten years as part of its expansion. Subsequently, India-based Infosys announced in May 2017 that it would open a tech hub in OneAmerica Tower, adding 100 workers by year-end 2017 and 400 additional employees next year, with a potential of creating up to 2,000 new jobs by 2021. Moreover, Octiv, formerly known as TinderBox, also plans to expand its downtown operations, creating 224 new high-wage jobs and investing $3.2 million by 2021. Lastly, we note the state's newest tech hub, The Union 525, recently relocated into the Brougher Building in Downtown Indianapolis in February 2017; the hub, which offers space for startup and scale-up companies, was created to appeal to tech startups on the brink of serious growth. Additionally, Cummins Inc. recently moved into its new, ten-story, global distribution business headquarters office building in early 2017, including a parking garage, 15,000 square feet of retail space, and a large public plaza on the former site of the Market Square Arena; the building is expected to house up to 400 Cummins employees, with 250 employees upon opening and an additional 200 in the next several years. Lastly, two new TIF districts are under consideration to spur redevelopment, which should benefit Downtown Indianapolis. On the west side of the White River along West Washington Street, the site of the 103-acre former GM plant (closed 2011) is under consideration for a $550-million mixed-use redevelopment initiative, while efforts to develop the Market East District are underway at Alabama and Market Streets.Meetings and ConventionsConventions and events held at the Indiana Convention Center produce the bulk of meeting and group demand in Indianapolis, predominantly representing the association, corporate, and SMERFE segments; however, notable meeting demand is also booked directly with hotels and coporate events, as well as sports tournaments and social events.Located in the heart of Downtown Indianapolis, the Indiana Convention Center currently houses 566,000 square feet of contiguous exhibit space. The facility has historically been associated with and connected to the RCA Dome, which was demolished in 2008 to make way for the expansion of the convention center. The convention center is now connected to Lucas Oil Stadium, a multi-use facility that can accommodate a variety of events, including sporting events, concerts, conventions, and tradeshows. In January 2011, the Indiana Convention Center completed a $275-million, two-level expansion, which included the construction of 254,00 square feet of exhibit space, 63,000 square feet of meeting space, and approximately 103,000 square feet of pre-function and registration space. A three-level, glass-entry pavilion was also created as the focal point of the center. In total, exhibit space in the combined facilities equates to approximately 750,000 square feet, plus additional meeting, ballroom, and pre-function space. The Indiana Sports Corporation brings major sporting events to the area, including Olympic, NCAA, Big Ten, and professional All-Star events. During these major events, hotel rooms are in demand and sellout situations are experienced throughout the greater metropolitan area. Area hotels benefit from these sports group blocks, which constitute hundreds of guestrooms. Demand for Indiana Sports Corporation events are spread throughout the year for various sports. Indianapolis has emerged as a premier youth and amateur sports destination, led by the opening of the $45-million Grand Park sports campus in nearby Westfield in the spring of 2014. The 400-acre sports "mega park" features 26 diamonds for baseball and softball; 31 multipurpose fields for soccer, lacrosse, football, rugby, and field hockey; 2 large indoor facilities to accommodate off-season play and training; and more than ten miles of paved trails. Moreover, the complex added an indoor soccer and basketball/volleyball facility in January 2016.Leisure AttractionsIndianapolis benefits from a variety of tourist and leisure attractions in the area. According to the Downtown Indy Partnership, tourism generates over $4.4 billion in economic impact for Central Indiana. In fact, Indianapolis attracts over 26 million visitors annually, with a typical traveler spending an average of $169 per day. Leisure demand comprises visitors to the area's universities and colleges; interstate motorists; medical patients; and regional travelers attending local concerts, festivals, and sporting events. The peak season for tourism in this area constitutes the warmer months, from May to September. Notable local attractions include:The Indianapolis Motor Speedway is the world's largest spectator facility and the only racetrack to host the Indy Racing League, NASCAR, and Formula One. Most notably, the Indianapolis Motor Speedway annually hosts the Indy 500 in May and the Brickyard 400 in July. Furthermore, the Red Bull Air Race was held for the first time at the track in early October 2016.Lucas Oil Stadium, the home of the NFL's Indianapolis Colts, opened in the fall of 2008, and basketball fans can enjoy Indiana Pacers home games at Bankers Life Fieldhouse. Moreover, the Indianapolis-based NCAA organizes the Final Four collegiate basketball championship every spring, and this event is periodically held at Lucas Oil Stadium; the Final Four, which was last held in Indianapolis in April 2015, is slated to return in 2021. Victory Field is a minor-league ballpark that is home to the Indianapolis Indians of the International League.Indianapolis is home to several museums, including the NCAA Hall of Champions, the Children's Museum of Indianapolis, and many more. Additionally, the Indianapolis Zoo hosts approximately one million visitors each year and plays a major role in worldwide conservation and research.Market Performance & SupplyThere are approximately 280 hotels and over 30,000 rooms in Indianapolis MSA, while Indianapolis itself offers approximately 175 hotels totaling more than 23,000 rooms. Since 2005, the greater Indianapolis market has realized an increase of approximately 7,625 new hotel rooms, representing a 24% increase in supply, with roughly 2,500 of those rooms in the downtown area. However, between 2012 and mid-year 2017, supply increases slowed to a rate of just 5.7%, as illustrated in the corresponding table.Furthermore, since 2012, approximately 15 hotels have closed in the metropolitan area. This loss of available room nights has contributed to the slowed supply rate growth and has assisted in mitigating the impact of the new rooms that have and will be added across the market. According to our interviews with market participants, market-wide demand growth has generally well outpaced supply increases in recent years, leading to market-wide occupancy levels not experienced since prior to the Great Recession. Demand improvements have primarily been driven by continued strength in meeting and group demand from the expansion of the Indiana Convention Center in 2011 and the opening of Grand Park in 2014. Subsequently, average rate and RevPAR have also reportedly climbed to new peaks in recent years. Citywide meeting and group lodging demand was buoyed with the 2011 expansion of the Indiana Convention Center (ICC), coupled with the 2010/11 opening of Marriott Place, which added 1,626 downtown guestrooms. The combination of the additional meeting space and guestrooms has allowed the ICC to accommodate much larger groups. Moreover, the center's flexible configuration and sky bridge access allows it the capability to host two significant groups simultaneously. The timing of the last expansion somewhat insulated the market from the last recession, as the market did not realize as severe of an economic downturn as many comparable markets. The number of meetings at the newly expanded ICC continued to grow through 2013; however, attendance contracted in 2013, before climbing to a new peak in 2014. Following the state's passing of the controversial Religious Freedom Restoration Act (RFRA) in early 2015, both the number of events and attendees declined, as select events were canceled. However, according to convention officials, convention attendance and room-night bookings rebounded strongly, suggesting mitigation of RFRA's impactCitywide meeting and group demand has also benefited from the opening of Grand Park in the spring of 2011, which has injected an estimated 40,000 additional room nights each year through year-round sporting events at the youth, high school, and collegiate levels. Although Grand Park produces a majority of its demand in the spring and summer months, the addition of its indoor soccer and basketball/volleyball facility in January 2016 has helped supplement demand in seasonally slow winter months. Indiana Convention Center's increased group capacity and Grand Park's abundant success have renewed hotel-development interest across the market, especially in the downtown and northern submarkets of Indianapolis, as illustrated in the table below. As of October 2017, 10 new hotels, representing approximately 1,750 additional rooms, were under construction in the Indianapolis MSA. However, many other hotel projects were in the early development stages, and as such, were not listed.OutlookFavorable supply and demand dynamics have kept Indianapolis's hotel industry roaring in recent years. However, many new hotels are scheduled to open in 2017, including nine additional hotels by year-end, representing over 1,000 rooms. The supply changes will make the hotel environment more competitive, though the exact impact on average rates and overall occupancy remains to be determined. Through 2016, hoteliers continued to achieve rates unprecedented for this market, as hotel operators and entities, such as Visit Indy and the Indiana Sports Corporation, successfully raised the city's competitiveness to regional and national peer markets. HVS anticipates continued average rate growth in 2017 and 2018; however, occupancy rates are expected to soften as new supply comes online. Moreover, given the anticipated reopening of the newly expanded Kentucky International Convention Center in Louisville mid-year 2018, which competes with Indianapolis for conventions, as well as the near-term openings of several new convention center hotels in competitive convention destinations, we expect meeting and group demand associated with the ICC to be somewhat subdued in the coming years. Market upside is anticipated given the pent-up demand for high-level sports events and a reported lack of metro-area hotel rooms during peak periods, in conjunction with Indianapolis's strong reputation as a sports hub, which should bolster leisure travel in the area over the long term. Additionally, company expansions and relocations, particularly in the technology sector, are expected to continue to fuel strong commercial demand growth in the near term. Taken together, these dynamics support a generally positive outlook for the Indianapolis hotel market over the next several years.
HVS: Hotel Bulletin Q3 2017 - Rising Costs Prove Challenge To UK Hotels Prompting Slowdown In ReVPAR Growth | By Russell Kett
HVS · 8 November 2017
Some investors could become increasingly wary of hotel assets as RevPAR growth plateaus amid predictions of labour shortages and increasing costs, according to Hotel Bulletin Q3 2017 published this week by HVS, AlixPartners, STR and AM:PM.The Bulletin reports that in Q3 2017 average growth in RevPAR (rooms revenue per available room) at 5% was the lowest level since Q1 2016, although the long-term outlook for UK hotels remains firmly positive.While these results outpace UK GDP growth, which has averaged below 1% in the same period, the impact of a lower growth environment, global political uncertainty and an increasing threat of terror is taking its toll on performance across hotels in the 12 UK cities the Bulletin polls.Belfast and Edinburgh bucked the trend, with 11% RevPAR growth, benefiting from an increasing number of tourists taking advantage of a weaker pound. London recorded a 2% increase in RevPAR, despite a drop in occupancy, while Aberdeen recorded its eleventh consecutive quarter fall, albeit at the lower rate of 1%.Transaction values in Q3 totalled PS1.6 billion, bolstered by the sale of Grosvenor House for a reported PS550 million, the highest single transaction since 2014. Total transaction values reached PS1 billion in Q3, partly attributable to investors keen to complete transactions before the impact of Brexit is felt.While forecasts expect year-end RevPAR to show an overall increase of 4.5%, key issues for the sector are controlling costs, most notably that of labour, and the sourcing of staff due to the declining net migration and the UK's expanding hotel supply.However, the Bulletin points out that UK hotels rank in the top three for gross operating profit per available room (GOPPAR), reflecting a GOP margin percentage of 43.9% ahead of those in the USA, China, France, Spain, and Germany, and behind only Singapore and the United Arab Emirates.Said HVS chairman Russell Kett: 'The UK hotel industry has faced a stream of headwinds in recent years, including rising costs, supply growth, terrorist attacks, and the evolution of third-party distribution and sharing economies. However, the five-year trend suggests that hotel operators will continue to adapt and innovate to drive continued growth and profitability, and thereby value.'It is unlikely that investor interest will ever wane substantially for hotels in London, although it might start to taper off in the provinces. Performance continues to grow, albeit at a slower rate, and even though profitability may be adversely affected through rising operating costs hotels still remain very profitable, particularly when operators are talented, diligent and nimble.'
HVS · 8 November 2017
This market snapshot provides an overview of the recent performance of the lodging industry in Madrid, Spain, in terms of demand and supply and analyzes past and future tourism trends. In writing these articles we utilise the expertise of HVS for each market combining our in-house data and research together with published information and interviews with opinion leaders regarding each of the examined destinations.Spain HighlightsSpain is the fourth-largest economy in the euro-zone. After the 2008 world's financial crisis Spain has finally recovered from the economic stagnation and since 2013 the economy has grown strongly. In 2015 the GDP has grown by 3.2%, and in 2016 INE (Spanish National Institute of Statistics) has estimated that the GDP growth remained at the same levels (3.2%). This growth is expected to continue during 2017 (+2.50%) and 2018 (2.07%).On the other hand, Spain still has some major economic issues such as the public debt that has increased steadly since 2007, reaching in August 2017 the record of 100.9% of Gross Domestic Product (GDP). Another major issue is the high unemployment rate (19%), though is decreasing compared with the peak of almost 27% registered in Spain during 2013.According to the World Travel and Tourism Council, the total contribution of the Travel and Tourism (T&T) economy to the GDP of Spain was EUR173.1 billion (16.0% of total GDP) in 2015, and is forecasted to rise by 3.5% to EUR179.1 billion in 2016, and to rise by 2.0% per year to reach EUR219.1 billion (16.2% of GDP) in 2026. The Spanish T&T economy is currently ranked 8th to its total contribution to the country's GDP amongst 184 countries. In terms of employment, the total contribution of the T&T was 16.2% of the total (2,901,500 jobs) in 2015. This is expected to rise by 2.4% in 2016 to 2,970,500 jobs and to reach 3,172,000 jobs in 2026.With total tourist arrival in 2016 equal to 75,6 million, July 2017 has been recorded as the month with the highest number of arrivals in the history of Spain with a number of 10,5 million, outclassing the previous record of 10,02 million arrivals of August 2016. During the first 7 months of 2017 international arrivals increased by 11,3% compared with the same period of 2016, according to INE. The top source country is the United Kingdom (+8,7%) followed by Germans and French (respectively +9,4% and +4,3% compared with 2016). The areas that have contributed the most to this growth registered so far in 2017 are the region of Cataluna (8,6 millions visitors, +13,2% vs 2016) and Madrid region that has registered an increase of 21% vs 2016 reaching 3,3 millions of visitors in the first semester of 2017, according to INE.City OverviewMadrid is the capital and the largest municipality of Spain. It is the most populous city in Spain, with approximately 3.2 million inhabitants, expanding to over 6.5 million over the greater metropolitan area. The Spanish capital is the third largest-city in the European Union.Madrid is amongst the most important Spanish tourism hubs. The city's offer is especially wide. Madrid is the capital of Kingdom of Spain since over five centuries therefore it boasts an unique offer in terms of art, culture and architecture. The city offers numerous museums, the Prado and the Reina Sofia are considered amongst the most important in the world. Besides, Madrid houses the headquarters of several international company and global organizations, such as World Tourism Organizationa and the United Nations. Madrid has always been the indisputable financial capital of Spain and according to the Financial Times after the Brexit it has been identified as new possible home for the London-based institutions looking for a new headquarter in EU.Moreover, the city is the venue of global fairs, such as FITUR, ARCO, and the Madrid Fashion Week. Indeed, a remarkable segment of the tourist arrivals are attracted for business purposes. At last, is important to mention that Madrid hosts two of the most important football clubs in the world, Real Madrid and Atletico Madrid, each year many tourists travel from all over the world to attend the games.Read the rest of the article at HVS.com
HVS · 2 November 2017
Hotel development activity correlates directly with the ebbs and flows of hotel-sector performance. As we reached the peak of the current cycle in 2016, developers pursued hotel construction and redevelopment at a pace we haven't seen since 2006 and 2007. HVS has tracked Hotel Development Costs for the last three decades, collecting data from actual hotel cost budgets during our assignments. This year's sample reflects the largest sample HVS has analyzed given the number of hotels in the pipeline, as well as our growing presence in 35 U.S. markets. The data in this survey reflect budgets from 2016. With the availability of more data, we elected to add a lifestyle/soft-brand category and a dual-branded category; moreover, we bifurcated the extended-stay hotel category into midscale and upscale segments. These products represent some the fastest-growing sectors. Thus, our data now reflect nine product categories. The brands represented in each of our categories (in our survey data) can be found in the addenda to this study. In the last year since the 2015/16 study was released, the most common question posed to our authors addressed the delineation of geographic data by segment. While we can sort the data for smaller samples in specific markets, we are unable to provide meaningful conclusions because of the limitations in the data set. However, the analysis and inclusion of both the median and the mean help to balance the high- and low-cost markets. Our goal in sharing this publication is to provide a basis for developers and consultants in evaluating their hotel development projects. This report should not be relied upon to determine the cost for actual hotel projects or for valuation purposes, but rather, it is intended to provide support for preliminary estimates or support for actual cost estimates, as well as to show a comparison across the categories. Please continue to reach out to us with your comments and questions, as this feedback helps improve our annual survey.Hotel Development on the RiseIn most U.S. markets, hotel occupancy and average daily rate (ADR) continued to rise in 2016. Hotel development in some markets was previously hindered by the lack of available brands; however, options for development have expanded as many new brands, some affiliated with the most dominant companies, have emerged. Shrinking AOPs (Areas of Protection for franchisees) and the push toward independent lifestyle hotels and soft brands has further widened the opportunities for new entries into the market. Following six years of consecutive occupancy growth, analysts agree that we have reached the top of the cycle in terms of hotel performance, as occupancy has peaked, and ADR increases have moderated to inflationary levels. While the number of rooms available in the U.S. increased by 4.7% from 2011 through 2016, overall rooms sold grew by approximately 19.0%, resulting in rising hotel occupancy and ADR levels that support the cost of new development.As evidenced in the following chart, supply growth began to surpass demand growth in 2016. With more options than ever before, hotel developers have been capitalizing on favorable market conditions. The new supply pipeline is beginning to make up for a relatively long period of modest supply growth. Some markets, including Miami, Nashville, New York City, and Seattle, are anticipated to record more than a 25% increase in hotel room supply over the next three years, with Nashville leading the way with over a 30% expected increase in supply.The major indicators of hotel performance illustrate signs of slowing growth, as presented above. Average rates in the U.S. increased slightly in 2016, while occupancy remained flat. This trend correlates to the changes in supply and demand shown in Exhibit 2, with supply growth meeting demand growth in 2016.Macro EnvironmentRising development and construction costs continue to be a major factor in new construction. While nationwide construction costs were reported to be around 4.7% higher in 2016 than in 2015 by the U.S. Department of Labor, many markets continue to experience double-digit increases in hotel construction costs. The primary factor in these rising costs is the shortage of skilled labor in major markets. The high construction volume across all market segments has caused demand for these skilled workers to surge. According to the Bureau of Labor Statistics, unemployment in the construction sector fell to 6.3% in 2016, the lowest rate registered in the last ten years. It was reported that the respective unemployment rate could have been lower, but training in this sector lags the demand for skilled laborers. The construction workforce is still 9% below its peak of 7.5 million workers in 2007 (compared to the 12% deficit last year); thus, the labor shortage is driving up construction wages, which rose 2.15% on average in 2016. Conversely, a new trend is beginning to emerge in hotel development: modular construction. Primarily used in residential housing, modular construction is making its way into the commercial sector. While modular construction is not necessarily a cost-saving initiative from a labor and materials standpoint, the cost savings result from the shortened project timeline. Modular hotel projects save approximately two to three months in total construction time, which can be as much as a 10-15% time savings. Modular construction has additional benefits, including waste, labor, and theft reduction, as well as the ability to serve remote areas. These units are also reported to have higher quality construction given that the modular units need to withstand travel to the worksite. While none of the budgets in our survey reflected modular construction, we expect this trend to increase going forward.Hotel Development Cost CategoriesThe Uniform System of Accounts for the Lodging Industry (USALI) provides industry participants with a common language for analyzing the financial performance of a hotel. However, no such system exists for hotel development budgets. Evaluating the completeness of a budget is often challenging, as different line items are used, and some components are unintentionally omitted. Based on our experience preparing the annual HVS Hotel Development Cost Survey, we have developed the following summary format for hotel development budgets, which forms the basis for the presented cost categories. We find that these categories are meaningful for hotel professionals when undertaking an analysis relating to hotel feasibility, and they provide a basis from which to analyze proposed projects.The following illustration shows the five categories defined by HVS and the typical items that each include.The categories are not meant to be all-encompassing but do reflect the typical items in a development budget. In construction accounting, development budgets are generally presented in far greater detail than for general investment analysis.Data Collection and Sample SizeIn 2016, HVS collected more actual hotel construction budgets than ever before, spanning 42 states. While not every construction budget was captured (due to a variety of reasons, including incomplete data, skewed data, or development attributes), the construction budgets sampled span the United States. Furthermore, construction costs vary greatly in different parts of the country. In this sample, the highest construction costs per key were for projects in New York City and California. Other urban CBD markets, such as Chicago, Atlanta, and Dallas, reflected high costs, as well. Conversely, the highway adjacent, rural, and mid-America suburban markets set the low data points. We selected 275 complete and reliable budgets that form the basis for this year's survey. The budgets included projects that reflected both ground-up development and the redevelopment of existing buildings. Approximately 17% of the total budgets were projects where all or a portion of the building was existing. However, when comparing the average cost of redevelopment projects and ground-up projects, the hotels related to redevelopment had a higher cost per key. Part of this cost premium is attributable to product type, with redevelopment products more likely to provide a higher level of service, including meeting space and food-and-beverage facilities. Furthermore, existing buildings are more likely to be redeveloped in urban cores, which have higher construction costs than suburban markets and are more likely to be subject to union construction labor. Redevelopment of historic buildings were also more likely to have tax incentives or development rebates, helping to incentivize the projects and offset some of the cost premium associated with these kinds of projects. In general, these projects fall in line with their ground-up counterparts in terms of total development cost per key when the product type and location are considered. We also examined the lodging product tier (STR chain scale) breakdown of our data set against the national data from STR. According to STR, over 4,700 hotels are in the U.S. pipeline for opening over the next three years. Our sample is generally in line with the STR's national figures for breakdown by chain scale (by number of total rooms). Our data are considered representative of the nation as a whole.Per-Room Hotel Development CostsAs noted previously, we have changed our categories this year to include three more segments. In addition to the common segments, we have bifurcated extended-stay hotels into two categories, midscale and upscale, and we have added a lifestyle/soft-brand category. Lastly, we had a large sample of dual- or triple-branded hotels in our data set. The growing popularity of these dual- and triple-branded hotels warranted a separate category. Most of these dual-branded budgets included a limited-service hotel and a select-service hotel, and the limited-service property usually offered an extended-stay product. The averages and medians reflect a broad range of development projects across the U.S., including projects in areas with low barriers to entry and in high-priced urban and resort destinations.The data supported many of the trends that we are seeing across the country. The increasing development of both midscale and upscale extended-stay products afforded us adequate data to provide the breakdown between these two product types. In addition, the increasing number of lifestyle/soft-branded projects under development enabled us to separately present cost data for this product type. Given the segmentation of the data, it is interesting to see the percentages of total across the nine categories. Whether one is building a budget/economy hotel or a luxury hotel, the percentages remain relatively consistent across all segments. It is important to note that the hotel parent companies generally provide cost estimates for each of their brands. From our experience, these estimates are generally low compared to the actual budgets and do not account for location attributes. Construction companies are one of the best sources for accurate hard costs and FF&E costs for hotel projects. It is advised that developers consult more than one source in their hotel development process.The budgets analyzed in this survey are provided directly by the developers, owners, and lenders on both ground-up and conversion hotel projects. Finally, we recommend that users of the HVS Hotel Development Cost Survey consider the per-room amount in the individual cost categories only as a general guide for that category. The totals for low and high ranges in each cost category do not add up to the low and high ranges of the sum of the categories. None of the data used in the survey included a project that was either all at the low range of costs or all at the high range of costs. A property that has a high land cost may have lower construction costs and higher soft costs. Hotels developed in high-cost markets, such as New York City, account for a small percentage of the projects, but typically have per-room component costs that set the upper end of the range. Alternatively, secondary and tertiary markets will generally account for projects on the lower end of the range. The total costs shown in the preceding table are from per-room budgets for hotel developments and are not a sum of the individual components. All individual property information used by HVS for this cost survey was provided on a confidential basis and deemed reliable. Data from individual sources are not disclosed.
HVS ·26 October 2017
Public sector involvement in convention center hotel projects is common due to the high cost of development and lack of private capital for such investments. Event planners expect the presence of a hotel adjacent to a convention center. Consequently, proximate hotels are essential for many convention centers to remain competitive in the convention center industry. As most communities desire the economic impact of group events and the spending of the visitors they attract, many are providing public subsidies to projects that are not feasible on a purely private basis.Public involvement in hotel development may be divided into two general categories: 1) public/private partnerships, and 2) public financings. In a public/private partnership, the hotel is typically owned and developed by the private partner, and public involvement takes the form of a public subsidy or "bridging the gap" between the cost of constructing and financing a hotel project and the combination of equity and loans a private developer can secure for the project. In the category of public financing, the sponsoring municipality issues taxable or tax-exempt debt to cover the cost of constructing and financing the hotel project, accessing the municipal bond market rather than conventional sources of hotel debt and equity. The net operating revenues of the hotel are pledged as the first source of funds for the repayment of the bonds. A comparison of the two approaches to hotel financing is presented in the table below.TrendsThe figure below shows the frequency of publicly supported convention center hotels by year of opening date from 1959 to present to 2020. Three projects are currently under construction. HVS research found 44 hotel projects with 600 or more rooms that had substantial public-sector involvement in their financing.The maturation of a highly competitive convention market has placed increasing pressure on cities to improve their appeal by adding hotel supply proximate to their convention venues. A change in tax law in 1996, which expanded the ability of governments to publicly finance hotels with municipal debt, also caused public sector investment in hotels to become more frequent.Since 1959, the only hotel projects of 600 rooms or more outside of the gaming and resort industries that have been privately financed have occurred in New York City, Austin, and Seattle, where high occupancy and room rates can support development of a full-service hotel. All other developments have required some form of public support, either through public financing and ownership or a through a public/private partnership. Share of Public InvestmentThe table below lists convention center hotel projects with more than 600 rooms that have received public sector support. This analysis covers the opening dates of hotels for the years 1959 through 2020.Forty-two cities have participated in 44 convention center hotel projects with 600 or more hotel rooms. Twelve projects have been publicly financed. Where information was available, HVS estimated the share of public investment in public/private partnerships of these hotel projects. The estimated share of public investment has averaged 33% and ranged from approximately 10% to 65%.Public/Private PartnershipsThe amount of public support required to finance a hotel through a public/private partnership is dependent upon the gap between the capital cost of the project and the amount of debt and equity that can be raised in the capital markets.Public/private partnerships in hotel development are more frequently used for projects in which a reasonable amount of public equity investment can make the difference between a feasible and infeasible project.The financial feasibility of a hotel depends on several factors, including:construction costs,estimated net operating income of the hotel,interest rate levels,availability of equity,seasonality and volatility of the local hotel market, andother factors that affect the allocation of investment risk and return.For the recently approved project in Oklahoma City, city leaders chose to engage a private developer to construct a $235.5-million, 600-room Omni Hotel adjacent to the new convention center. The city will contribute $85.4 million capital (36% of the total) by issuing debt to be repaid with revenues from a tax increment financing district and other sources.Publicly Financed HotelsThe first publicly financed hotel project completed under current IRS rules was the Hyatt at McCormick Place in Chicago. The Chicago project and the Sheraton in Sacramento were the first and only projects to be financed with all non-recourse debt where the only source of debt repayment payment and credit for the bonds was the net operating income of the projects.Less favorable credit markets, decreasing access to capital, and uneven performance of hotel markets since 2001, forced all subsequent projects to be credit enhanced. That is, the sponsoring municipality or another third-party entity guarantees that at least a portion of the debt service will be paid if hotel net operating income is not sufficient. After the 2008 Great Recession and the disappearance of mono-line insurers, third-party guarantees became unavailable. Local governments assumed increasing amounts of risk in publicly financed projects or turned to public/private partnerships that shifted risks to the private sector.In public financings, the public sector raises 100% of the capital through debt issuance. The primary advantages of public financings are lower costs of capital and the benefits of retaining ownership and control over of the hotel asset. In public/private partnerships, credit enhancement offered by local governments can provide the security required to borrow in the capital markets.In most cases, the public sector also benefits from room block commitment agreements, which require the convention hotel manager to commit a large share of their room inventory to convention center events at reasonable rates.But, these financial advantages require the assumption of more risk--primarily the risk of an underperforming project that does not generate sufficient revenues to repay debt and provide for capital replacement costs.Most municipalities seek to balance their level of financial risk with the market demands for a level of public financial commitment that makes the project feasible. Risk mitigation strategies include the following:Reduction of the project size in terms of the number of rooms and function space that reduces overall capital costs.Structuring debt so that projected net operating income is substantially greater than debt service requirements. Debt service coverage ratios greater than 1.25 allow for the project to perform below expectation without requiring the sponsoring municipality to act on its pledge to pay debt service.Creating extraordinary debt service reserve funds that are available throughout the "rampup" period of the hotel (the first four to five years of operation) when the risk of failure is the greatest.Using project related taxes such as hotel, sales, and property taxes to pay debt service. To the extent that project revenues are new incremental revenues to the city that would not be realized without the project, the use of new project revenues entails no financial risk to the sponsoring municipality.Limiting the amount of debt service that is credit enhanced. The strength of the local hotel market and its history of volatility or stability determine the share of the debt service that may be non recourse. Non-recourse debt (issued at reasonable interest rates) typically requires annual net operating income more than two times debt service. A sponsoring municipality may seek to maximize the amount of nonrecourse debt. However, this strategy has the effect of reducing debt capacity because the interest rate levels on non-recourse debt may be substantially more than credit enhanced municipal debt.Facing debt capacity limitations and seeking to maintain control of the project in any unforeseen foreclosure situation, some municipalities have chosen to credit enhance the entire debt issuance. In Houston, the city issued revenue bonds supported by city-wide lodging taxes to support the development of their headquarters hotel and convention center expansion. Even though many of these projects opened prior to or during the 2008 Great Recession, only one project, the St. Louis Renaissance project (subsequently renamed the Marriott St. Louis Grand) defaulted on its debt. Other projects such as the Sheraton Hotel in Phoenix faced dual challenges of the recession and event planner boycotts brought on by passage of unpopular State legislation. None-the-less, guarantees of debt repayment by the city allowed the Phoenix Sheraton and other projects facing challenging economic conditions to continue to successfully operate and avoid default.ConclusionPublic agencies may choose from a wide variety of options to provide public support for a convention center hotel project. This support can come in the form of bond financing, the donation or favorable leasing of land or infrastructure, empowerment zone development, and other methods of support discussed herein. Whatever forms the public support may take, public officials often try to provide a level of support that is commensurate with the expected economic impacts the proposed project is expected to generate in the local community.
Market Pulse: Toronto Airport Strip, ON, Canada | By Jingjianxiong (Charlie) Shi, Cedric Oberlin and Monique Rosszell
HVS ·25 October 2017
YYZ has seen an increase in air capacity lately. A number of airlines are offering new routes or have added more flights to existing routes. So far in 2017, Air Canada has launched new international service between Toronto and Mumbai, Berlin, Memphis, San Antonio, and Savannah. In the summer of 2017, WestJet increased the frequency of flights on its routes from Toronto to Orlando, Los Angeles, Las Vegas, Montreal, and Moncton, respectively.YYZ Passenger Traffic Expected to Set New Record Again in 2017Major ProjectsFor the past 12 years, the three-terminal airport has been undergoing a $4.4-billion CAD redevelopment program in order to help the airport meet the future air-transportation needs of the Greater Toronto Area. The airport will be capable of accommodating up to 65 million passengers a year by 2033. The Terminal 3 Enhancement Project, which involves improved retail, energy-efficiency initiatives, and new security screening in advance of United States Customs and Immigration Processing, is underway and scheduled for completion this year. In 2016, the capital spending on airport infrastructure amounted to more than $128 million.In early 2016, the Greater Toronto Airports Authority (GTAA) announced plans to develop an $11.2-billion regional transit hub to connect the airport area with key employment and residential areas throughout the Greater Golden Horseshoe. The proposed transit centre is to be located on 68 hectares of GTAA land across Airport Road from Terminals 1 and 3. A number of transit lines, such as trains, light-rail cars, and bus lines, would all circulate through the hub. A new mixed-use commercial area that will include office, retail, hotel, and other commercial space will be included in the development. In August 2017, the GTAA launched a Request For Proposal to procure design consulting services for the concept development of the regional transit centre. The target completion date for the project is 2027.The new Union Pearson (UP) Express LRT line was launched in June 2015 and is a key infrastructure enhancement that better integrates the airport with Downtown Toronto. As traffic between Downtown Toronto and the airport is expected to double over the next ten years, the rail service will become essential to the efficiency of Toronto's transportation infrastructure. In addition, the Eglinton Crosstown LRT is expected to connect to the UP Express line upon completion in 2021, enhancing the accessibility between the airport and the northern Toronto area. The impact of the UP Express LRT on the YYZ hotel market has been generally positive, especially since the increasing rates at downtown hotels have been encouraging customers to stay in the airport area. Hotels that are farther away from the UP Express train station have yet to see any direct benefit aside from a small amount of overflow demand from hotels that are close to the train station, such as the Sheraton Gateway Toronto Airport and the Alt Hotel Toronto Airport, during periods of compression.In April 2017, Woodbine Entertainment Group (WEG) unveiled the completed master plan for the Woodbine Racetrack lands. Woodbine's privately owned 684-acre site will be transformed in the years to come into "a city within a within a city," creating a new urban heart for northwest Toronto. The vision would have Woodbine remain the ultimate destination for horse racing and gaming while adding new and expanded entertainment and cultural offerings, including dining, hotel, shopping, office space, post-secondary education, recreation, and health and wellness amenities, along with options for urban residential living. A new concert venue with the ability to accommodate as many as 5,000 spectators could also be built next to the racetrack. The first phase of development includes an expanded gaming district complete with integrated entertainment, hospitality, and related amenities. The first phase will attract approximately 12 to 15 million people per year, more than double the current number of visitors. In August 2017, the Ontario Lottery and Gaming Corporation announced the chosen operator for the new full-fledged casino, a consortium formed by the Great Canadian Gaming Corporation and Brookfield Business Partners. Woodbine is hoping to break ground on the project by next fall. At the end of September 2017, the City of Toronto still had the applications for rezoning and subdivision under review.Hotel Market SupplyAccording to STR, there are more than 10,000 hotel rooms in the Toronto Airport/West region. The area thus has more hotel rooms than some major Canadian cities, including Calgary, Ottawa, Quebec City, Halifax, Winnipeg, and St. John's. The market has seen strong growth in the past three years. In the discussion of the factors affecting the near-term vitality of the Toronto Airport hotel market that follows, the focus is on the 23 hotels that are located along the Airport Strip, defined as the portion of Airport and Dixon Road between Derry Road East and Martin Grove Road. Together, these hotels have more than 6,000 rooms. These lodging facilities generally perform better than the hotels that are more distant from the Airport Strip. Since 2015, HVS has completed more than 15 engagements on the Airport Strip.Hotels on the Toronto Airport StripLargest Portion of Branded Rooms on the Toronto Airport Strip = Upper-Upscale ClassLargest Portion of Branded Rooms in the Country = Upper-Midscale ClassSupply ChangesThere has been no new hotel development on the Toronto Airport Strip since the opening of the Alt Hotel Toronto Pearson in 2012. Given the ongoing improvement in overall market fundamentals, however, the market has seen numerous changes in hotel ownership during the past three years. With these sales have come a number of major hotel renovation, repositioning, and rebranding initiatives.The hotels that have gone through extensive renovations without a change in brand include the Westin Toronto Airport, the Holiday Inn Toronto International Airport, the Radisson Suites Hotel Toronto Airport, the Hilton Toronto Airport, and the Sheraton Toronto Airport Hotel & Conference Centre. Several hotel development projects are now in the pipeline for the Airport Strip.Hotel Market Performance and ForecastWith the recession and the resulting slowdown in international travel, the market-wide occupancy hit a historical low point of approximately 60% in 2009. Lodging demand for hotels on the Airport Strip has grown rapidly since 2010, spurred by the recovery in the North American economy; however, the average daily rate (ADR) remained on a downward trend, in part because hoteliers relied heavily on low-rated demand, such as airline crew contracts, to fill rooms. These contracts, which typically cover a period of one to two years, heavily favour airlines in the form of low rates, minimal year-over-year rate increases, short booking windows, and light cancellation penalties.The market-wide occupancy reached 73% in 2014, the highest it had been since 2005, which created the conditions to support ADR growth. The high level of competition had been keeping hotel managers from negotiating better rates, but this pressure eased with the further strengthening of demand. The Airport Strip market set new records for both occupancy and ADR again in 2015 and 2016. Local hoteliers have become more selective in the demand that they take on since the market-wide occupancy reached 75% in 2015. As most of the hotels on the strip have undergone or are undergoing some form of renovation, owners and managers have shifted their focus away from low-rated leisure and airline-crew demand in favour of corporate accounts that show less rate resistance. Given the high level of occupancy in the market area, most airport hotels have finally been able to negotiate better rates with airlines or are turning away airline business altogether.The correlation between the amount of passenger traffic and the demand for airport hotels is apparent. With the growth in passenger traffic at YYZ, demand for the hotels on the Airport Strip has likewise increased. The Hotel Demand to Passenger Traffic Ratio (calculated by Number of Hotel Room Nights/Passenger Count) can be used to evaluate the trend at airport lodging markets as it measures the percentage of airport pessengers that are captured by the airport hotels. For the 10-year period from 2005 to 2014, the Hotel Demand to Passenger Traffic Ratio for the Toronto Airport Strip hovered between 4.0% to 4.4%. The ratio dropped below 4.0% in 2016, and it is expected to decrease further by the end of 2017. The decrease can be partly attributed to the fact that hotels on the strip are not able to fully accommodate the surge in demand, resulting in unaccomodated demand which must be displaced to neighbouring hotel markets. Unaccommodated demand in the Toronto Airport market is high on weekdays, as a result of strong commercial demand, and on weekends in the summer, given the high leisure demand. The decrease in the Hotel Demand to Passenger Traffic Ratio is also a result of the hotels on the strip taking the initiative to turn away some low-rated business, which prevented additional demand growth. This strategy aims to increase hotel ADR and thus bottom-line performance.Passenger Traffic to Occupied Room Nights Decreases as Hotels Become More SelectiveThe robust rate growth in Downtown Toronto has also supported rate growth in the airport market. The rate disparity between the two markets has widened greatly. From 2005 to 2013, the Downtown Toronto market commanded a rate premium between $40 and $60 over the Airport Strip lodging market, but this gap has increased considerably in recent years and is projected to reach nearly $100 in 2017. This rate difference, coupled with the availability of the UP Express since 2015, has encouraged visitors to stay in the airport area. The widened rate disparity also indicates that the airport market has the potential for greater rate growth in the near term.The Rate Disparity between the Airport Strip and Downtown Toronto has Increased Steadily since 2009 and will Reach Nearly $100 in 2017The Outlook for the Toronto Airport Strip Lodging Market is StrongHotel TransactionsThe following table details the confirmed hotel transactions that have taken place on the Toronto Airport Strip since 2014.Closing RemarksThe Toronto Airport Strip is experiencing a period of economic expansion, driven primarily by increasing passenger traffic at YYZ. After many years of price competition, hotels on the strip are now capitalizing on the demand growth by shifting their market segmentation towards higher-rated patrons. As the annual passenger count at YYZ is expected to reach 65 million by 2033, the outlook for the Toronto Airport Strip lodging market is positive. The capital investments that have been put towards improving the existing lodging supply in the past few years are expected to help hoteliers further push up rates. The growth in airport traffic, the weak Canadian dollar, the improved hotel facilities, the UP Express bringing downtown much closer, and the strengthened local economy are all contributing to a healthy operating environment for the hotels on the Toronto Airport Strip.
HVS ·17 October 2017
Transactions in Asia PacificOver the past twelve months from October 2016 to September 2017, HVS has noted close to 240 transactions across Asia Pacific worth approximately US$12 billion. In comparison to the same period the previous year, transaction volume in Asia Pacific has increased by almost 12% with China contributing to 40% of the hotel transaction volume in the region. The largest transaction recorded was the portfolio of over 75 properties under Dalian Wanda China.Over the period from October 2016 to September 2017, Asia Pacific (excluding China and India) witnessed a total hotel transaction volume of almost US$4.4 billion as compared to approximately US$8.6 billion in the previous year. Reasons for slower transactional activity in the region include owners holding onto hospitality assets due to future growth potential, lack of capital strength from buyers, desire to hold onto ownership of marquee hospitality assets, amongst others.Regional Share of Hotel Transaction VolumeWe note that the majority of hotel transaction volume is still directed towards Australia, Japan and South Korea, similar to the previous period of October 2016 to September 2017.As compared to the previous period, hotel transaction volumes in Indonesia, Malaysia and Thailand have seen strong positive growths while Australia, Cambodia, Maldives, South Korea and Singapore have remained fairly stable. Markets such as Japan, Myanmar, New Zealand, Philippines and Vietnam were found to be less active.Investor ProfileWith a share of approximately 24%, the "developer/owner" dominates the hotel transactions in Asia Pacific and the "real estate operating companies" follows closely after at 23.5%.The majority of the investors who invest heavily within the Asia Pacific region are located in more developed countries such as Australia, Japan and Singapore.Read the full article here.
HVS ·10 October 2017
HVS is reminding owners and asset managers of hotels and casinos that have suffered insured losses of profits due to business interruption from the recent hurricanes that HVS has staff experienced in calculating, and supporting the claim for, business income losses. HVS will provide a calculation of the profit lost during the period that is covered under the business interruption period provided for in insurance policies.HVS has one of the largest data bases of information for Florida, Gulf Coast, Puerto Rico and other Caribbean markets in the consulting industry. The data includes market and financial data that can be used for benchmarking actual and projected results. When an entire hotel market experiences damages and closures due to events such as the recent hurricanes, the calculation of revenues lost for an individual hotel must be verified using models that are very similar to those used in the supply, demand and penetration forecasts HVS uses in its market studies and appraisals.With its in-house appraisal, design and affiliated architects HVS can assist in calculating the cost of physical storm damage repairs.HVS Asset Management's Newport, RI office will be leading the business interruption claim service effort. In its normal course of business, we analyze budgets, forecasts, rooms, meetings and catering booking pace, food and beverage, other revenue departments as well as labor and expense levels of all types of hotels and resorts in great detail. Our staff is experienced at reviewing hospitality insurance policies, with special emphasis on the business interruption coverage and requirements. Combining the analysis capabilities of our asset management team with our industry-leading hospitality intelligence and hotel and market revenue forecasting expertise, HVS is the most qualified firm to assist owners and asset managers and their law firms and insurance brokers when calculating the lost income and supporting the aggressive pursuit of business interruption claims. Our methodology will allow our clients to recover the lost profits that they deserve under their insurance coverages.For information contact either Jeff Crowley at +1 305-582-8928 or JCrowley@HVS.com or your regular HVS contact.
The Impact of the September 2017 Hurricanes on the Islands of the Caribbean | By Kristina D'Amico and Leora Lanz
HVS ·27 September 2017
And now, three years later, the Caribbean is feeling the effects of its own chain-reaction of natural disasters, while also trying to educate visitors with the topic of geography.In what appears to be a dynamic and active hurricane period, one of the busiest and most destructive season in decades, some of the islands of the Caribbean have witnessed destruction and evacuations like they've never seen before. And yet, despite these events, many more of the 32 island nations were actually not impacted at all, at least not by the hurricanes. Rather, these islands were affected by the immediate wave of cancelations and bookings, leaving hotel rooms unoccupied and inbound revenue absent.Geography Education is KeyWhich nations need recovery and support?The recent weeks have proven difficult for much of the Caribbean. The world has intently watched on as a series of destructive hurricanes have barreled through much of the region, leaving behind great devastation. While some islands escaped relatively unscathed, many were not as lucky.September 5, 2017, marked the beginning of the Caribbean destruction as Irma, an extremely dangerous Category 5 hurricane, made landfall on the island of Barbuda. The destruction continued as the storm, with maximum winds of 185 mph, passed over much of the Leeward Islands, including St. Martin/Maarten, St. Barthelemy, Anguilla, and the British and U.S. Virgin Islands. Also impacted by Irma's wrath were the Turks & Caicos and Cuba, as well as the Dominican Republic and Haiti to a lesser extent. After days of intense rain, violent wind, and dangerous storm surges, the Caribbean region was left with a devastating aftermath. Islands like Barbuda experienced virtually complete destruction of physical structures, while most others sustained severe damage to landscape, as well as physical structures, and many were left without power. The Prime Minister of Antigua and Barbuda, Gaston Browne, reported that roughly 90% of homes on his island of Barbuda were destroyed. Additionally, the hotel infrastructure on the island was damaged. These islands, which rely heavily on tourism, have been left with massive cleanup as they try to rebuild.Most recently, before reconstruction efforts could even begin to take place, the Caribbean was faced with yet another dangerous hurricane. Hurricane Maria took another hit at the already overwhelmed Leeward Islands, this time focusing its destruction on Dominica. Guadeloupe too fell victim to Maria, as well as both the British and U.S. Virgin Islands again, before the hurricane made landfall in Puerto Rico as a Category 4 hurricane with 155 mph winds. Dominica and Puerto Rico were severely impacted by the storm, both left with intense structural damage, as well as being entirely left without power. Specifically, Hartley Henry, Principal Advisor to Prime Minister Roosevelt Skerrit of Dominica, reported "tremendous loss of housing and public buildings."According to updates provided by CaribbeanTravel.com, the islands in most desperate condition are Barbuda, Dominica, St. Martin/Maarten, St. Thomas, St. John, and Puerto Rico. Still, much of the damage on these islands has yet to be completely assessed. An unfortunately active hurricane season has left much to be repaired in the region, but as many political leaders of the region have expressed, the Caribbean people are strong, and with support from around the world, they will rebuild.Which nations can welcome guests as others repair?Although many Leeward Islands have been devastated by these storms, there are still many Caribbean islands that have not been affected and are happily accepting visitors. According to Caribbean Travel Update, the following Leeward Islands, located between the northeastern Caribbean Sea and the western Atlantic Ocean, are open for business:Antigua: As of September 16, the island reports being open for business, with tours, restaurants, and hotels fully operating. More than 150 other dining locations are welcoming visitors. Around 2,000 of Antigua's hotel room inventory will be available for tourists by the end of October, following summer renovations. However, hotels open year-round are accepting travelers.Nevis: According to a September 22 update from Caribbean Travel Update, Nevis announced that the island did not suffer any significant damage post-Hurricane Maria, and hotels will reopen to guests as early as Friday, September 29.Kitts: Following investigations, the island is reopening to visitors, as it was not affected by Hurricane Maria. Hotels open year-round are completely operational. The island's international airport, Robert L. Bradshaw, resumed flights on September 20.Also available to welcome guests: While Hurricane Maria impacted many of the Leeward Islands because of their location in the path of the storm, the Windward Islands, situated in the West Indies (including Barbados, Grenada, Martinique, St. Lucia, St. Vincent, Trinidad & Tobago, and others), remain unharmed and are welcoming visitors. The Leeward Antilles, including Aruba, Bonaire, and Curacao, are islands that are situated along the southeastern Caribbean Sea and did not suffer hurricane damage. Other unharmed island options for tourists include the main islands of the Bahamas (New Providence and Grand Bahama), Cayman Islands, Jamaica, and the main tourist regions of the Dominican Republic (such as Punta Cana, as the Dominican Republic did not experience a direct hit). Bermuda, located in the Atlantic Ocean more than 1,000 miles out of the recent storms' paths, is also happily welcoming visitors at this time. What should hospitality developers know about climate-change impacts on the region?The Caribbean Basin is dependent on tourism. Unfortunately, the region is vulnerable to climate change and damage to natural resources due to the rising sea levels, erosion of beaches, and extreme weather events. Because of this, many entities and organizations throughout the region were founded on the premise of focusing their attention on improving the region's activities that involve climate change due to the significance of tourism to the national GDP of many of island nations. Instead of hiding from the facts, each island nation has taken the initiatives to develop new construction concepts to make hotel developments more resistant to climate change. A focus on energy production, land-use planning, regulations, and more stringent building codes has helped developers create new hotel products that are prepared for the changing times. Looking ForwardDespite the tragic events of this year, the Caribbean will rebuild, as tourism remains the lifeline for many of these island nations. In the wake of the devastating impact of Hurricanes Irma and Maria on various Caribbean island nations, HVS CHICOS, the Caribbean Hotel Investment Conference and Operations Summit (www.hvschicos.com ), will work with the Rotary Foundation to provide necessities such as water, canned food, and clothing to residents throughout the Caribbean that were affected by these tragic events.The Rotary Foundation has local expertise and a long history associated with operating in the region, specifically on the islands impacted by the hurricanes. The organization has stellar ratings as one of the "Top 10 Charities in the World," according to CNBC, as well as a high Charity Navigator score. Beneficiaries receive 100% of funds donated.HVS CHICOS has made a donation to the Rotary Foundation. The Bermuda Tourism Authority, representing a nation not impacted by the storms, but an island that wants to help its brothers and sisters in the region, has generously matched the HVS CHICOS donation. Given its Atlantic location, Bermuda is more than 1,000 miles out of recent storms' paths, and is fortunately safe and sound, welcoming visitors. Bermuda is also eager to welcome HVS CHICOS conference attendees in November.Those who wish to also contribute to the Rotary Foundation click here. HVS CHICOS Chairman Mr. Parris E. Jordan will serve on the Rotary Foundation's Advisory Committee to ensure that the funds donated will be put to the use they are intended.The authors wish to thank both Catherine Ostuni and Tara Tempesta from Boston University's School of Hospitality Administration for their research and contributions to this article.
HVS ·19 September 2017
In this sixth annual Lodging Tax Study, HVS Convention, Sports, and Entertainment Consulting surveys lodging tax rates and revenues across the United States. Our study includes a broad range of cities and tracks policy trends in lodging tax impositions. This research identifies the lodging tax rates levied at the state, county, city, and special district levels. We provide data on the collection and distribution of revenue from lodging taxes levied in all 50 States and the 150 largest cities in the United States.
HVS ·19 September 2017
The following HVS Market Pulse article details some of the major developments in Charlotte and their impact on the area's hotel industry.Charlotte Economic DriversFinance, technology, and manufacturing, alongside health care and education, serve as the chief economic drivers in Charlotte. Bank of America is headquartered here, and several major entities related to financial services and other industries have projects in the works. Dimensional Fund Advisors will construct its East Coast regional headquarters in South End, a project expected to bring roughly 300 new jobs. AvidXchange recently constructed its 200,000-square-foot global headquarters campus in Uptown Charlotte, and Sealed Air Corporation's $58-million, 380,000-square-foot global headquarter campus just went up near the Charlotte Douglas International Airport. Additionally, JELD-WEN, which already operates an executive office in Uptown Charlotte, will expand to its new, 120,000-square-foot headquarters and training facility in Ayrsley, a mixed-use community located in Steele Creek, just a few minutes southwest of Uptown Charlotte; the build-to-suit development is slated for completion later this year. Expansion projects are also underway or in the planning stages at the University of North Carolina-Charlotte in response to the continued increases in enrollment.Repeal of House Bill 2 (HB2)North Carolina House Bill 2 (HB2 or the "Bathroom Bill"), which passed into law in March 2016, took a heavy toll on Charlotte's economy and pipeline of projects and events. In April 2016, PayPal withdrew plans to open a global operations center in Charlotte. Additionally, the Atlantic Coast Conference (ACC) relocated its December 2016 ACC Championship Game, and the NBA relocated the February 2017 All-Star Game, both of which were planned to take place in Charlotte. The bill was repealed on March 30, 2017. As a result, the ACC Football Championship Game will return to Charlotte in December 2017; moreover, the NBA's 2019 All-Star Game will return to Charlotte, as well. Going forward, the repeal of HB2 is anticipated to contribute to commercial, leisure, and meeting/group demand growth in markets across North Carolina.Charlotte's Lodging Market PerformanceDuring the past three years, hotels in the greater Charlotte area have achieved occupancy levels from the low-to-high 70s. Average daily rates (ADRs) have ranged between $95 and $110, with premium rates in the Uptown and SouthPark submarkets, as well as the Ayrsley and Ballantyne neighborhoods, averaging between $125 and $160. Robust demand from transient corporate travelers and government contractors, as well as strong meeting and group demand growth and a gradual increase in leisure and tourism, boosted occupancy levels and produced healthy ADR gains from 2014 through late 2016. The overall strong performance of Charlotte's hospitality industry has been primarily attributed to the continual diversification of other industries in the area, which has produced varied pillars of demand.Hotel Supply In CharlotteAs of May 31, 2017, the Charlotte lodging market comprised 175 hotels totaling 23,184 rooms; 92% of hotel rooms are affiliated with a brand or a major parent company, while the remaining 8% operate as independent hotels (including the Dunhill Hotel, the Duke Mansion, and the Ivey's Hotel). Of the 21,289 branded hotel rooms, Marriott International (including the recently merged Starwood Hotels & Resorts' brands) operates approximately 29% of the inventory. Hilton Inc., Wyndham Hotel Group, Choice Hotels International, and InterContinental Hotels Group also have substantial representation in this market, ranging between 7% and 19% market share.New SupplySix nationally branded lodging facilities opened in the Charlotte market in 2016, adding 713 guestrooms to the city's hotel inventory, including the Home2 Suites by Hilton Charlotte Airport, the Holiday Inn Express Hotel & Suites Charlotte Airport, the dual-branded Residence Inn by Marriott and Fairfield Inn & Suites by Marriott Charlotte Airport, the Drury Inn & Suites Charlotte Arrowood, and the Home2 Suites by Hilton Charlotte University Area. The Embassy Suites by Hilton Charlotte Uptown, the SpringHill Suites by Marriott Charlotte Uptown, the Hampton Inn & Suites Charlotte/Ballantyne, and the Holiday Inn Express Hotel & Suites Charlotte NE-University Area have opened to-date in 2017, bringing an additional 664 guestrooms to the market. Of the currently 48 proposed hotel development projects in Charlotte, most are anticipated to feature limited-service offerings.While the full-service hotel developments are concentrated in Charlotte's Uptown, South End, and SouthPark submarkets, the proposed limited- and select-service hotels are being planned and developed in submarkets throughout the city. Of the total proposed new supply, three lodging facilities are slated to open in 2017, boosting inventory in Uptown and SouthPark by 486 total guestrooms. Meanwhile, site work or construction is underway on nine hotels, which will contribute an additional 1,092 guestrooms to Charlotte's hotel inventory between 2018 and 2019. The remaining 36 projects are in various stages of planning.Commercial and Residential DevelopmentMixed-use developments featuring office and retail components are currently underway or in the planning stages across Charlotte. These developments are anticipated to generate not only transient corporate hotel demand but also leisure and meeting/group demand for area hotels. City and county officials have focused aggressively on creating a "live-work-play" environment in Uptown Charlotte, which currently boasts the Charlotte Convention Center, a variety of entertainment venues, and corporate anchors such as Bank of America and Duke Energy. The 365,000-square-foot 615 South College high-rise office building, adjacent to the Westin Hotel, opened in late May, while the 630,000-square-foot 300 South Tryon office tower in Uptown is scheduled for completion in 2017. Highly anticipated projects in the planning stages include the 17-acre, multi-phase Brooklyn Village master-planned community in Uptown, which will feature residential and retail components, as well as office towers. The RailYard is a 3.5-acre block in South End that Beacon Partners plans to redevelop into roughly 290,000 square feet of office space and 100 multi-family residential units, with 30,000 square feet of ground-level retail. The 115-acre Riverbend Village mixed-use development is planned for construction in three phases in Northwest Charlotte. Riverbend Village will be anchored by the 78,000-square-foot Harris Teeter grocery store and will boast the $38-million Corning Optical Communications headquarters office, both anticipated to open next year. Charlotte's increasing popularity and career opportunities have also spurred residential growth. Multi-family residential developments are in the works in all four wards (neighborhoods) within Uptown Charlotte. These include Crescent Stonewall Station, which will be anchored by Whole Foods and offer the convenience of the LYNX Stonewall Light Rail Station. This development is expected to feature one twelve-story, 110-unit apartment tower and one five-story, 340-unit apartment building. The Ballantyne neighborhood will boast the Waverly, a mixed-use development featuring both single- and multi-family residential units, as well as a variety of retail venues. Meanwhile, the Steele Creek area continues to experience a boom in single-family residential developments.The FutureProspects appear favorable for the Charlotte hotel market over the next several years. The city's commercial and residential developments are anticipated to fuel continued demand growth from the transient corporate and meeting/group segments, alongside an expected rise in leisure demand. The ongoing diversification of industries within the Charlotte area should continue to strengthen the local economy. Although overall occupancy is anticipated to decline modestly in the near term with the entrance of new supply in 2017 and 2018, ADR growth is expected to remain strong, thereby maintaining RevPAR growth and strengthening demand fundamentals for the area's hotels. As of the time of writing, brand and service levels remained unconfirmed for 16 of these proposed hotel projects.
HVS ·19 September 2017
The Indian hospitality sector has woken up after a longish nap and, it is now time to set the cash registers ringing. While an assortment of influences had repressed the sector's endeavours to grow from 2009 to 2015, last year provided sufficient evidence that the next up-cycle was in the offing. Resultantly, 2016/17 played witness to a year, that has in no uncertain terms been positive on all fronts. Nationwide occupancy was the highest since 2008, countrywide average room rates clocked a clear and measurable increase over several preceding years and the overall supply-demand scale is now tilted squarely in favour of growth in demand outpacing new supply. The time to reap has arrived and industry stakeholders must not lose cognizance of the fact that the inherent cyclical nature of the hotel business would allow this opportunity only for a finite period. Lest we choose to doze off again, it is time for us hoteliers to truly elevate the sectoral performance to the next level. Indeed, Sleep is Silver, but Money is Gold!
HVS ·15 September 2017
AccessibilityBy AirIbiza Airport is the eighth-busiest airport in Spain in terms of passenger arrivals. The airport is seven kilometres from the centre of Ibiza Town, on the southwest tip of the island. The airport opened in 1958 during the great tourism boom in the Balearic Islands. Nowadays, visitors to Ibiza arrive primarily by plane (95% of total arrivals). Some of the airline companies that fly to and from the airport are the following: AirBerlin, AirEuropa, Air Nostrum, BA CityFlyer, British Airways, easyjet, Edelweiss, Eurowings, Evelop, Germania, Germanwings, Iberia, Jet2.com, KLM, Lufthansa, Norwegian Air Shuttle, Ryanair, Skywork Airlines AG, Swifair, SunExpress, Thomas Cook Airlines, Thomson Airways, Transavia.com, Vueling.By SeaThe three main ports are the ports of Ibiza, Santa Eulalia and Sant Antoni. The ferry companies -Balearia, Iscomar and Acciona- sail to the ports of Ibiza and Sant Antoni from different places on mainland Spain. Apart from the ferry crossings, it is also possible to reach the island by private ship, chartered crossings and various cruises. The regular sea crossings reach the island of Ibiza from Barcelona, Valencia, Denia and Palma de Mallorca.Main Regions and AttractionsIbiza old town, the capital of Ibiza island with its walled area (Dalt Vila) declared UNESCO World Heritage Site, located on the south of the city, in the municipality of Ibiza. It is known as the place where the posh night life scene evolves with a plethora of hotels, restaurants and bars bursting around the city featuring the latest trends of the hospitality or food and beverage industry. The city houses the main institutions of Ibiza and offers variety of services for the visitors and residents such as yachting marinas, business zones and hospitals. Some points of interests within area are: Ibiza Old Town, the Necropolis of Puig des Molins, Ibiza City Center, the Port of Ibiza and La Marina district and the Yaching Marina.San Antonio Bay, also known as Sant Antoni de Portmany, is located on the centre west coast of Ibiza. It is the second largest town of the island by means of population and chief leisure entertainment centre targeting the budget traveller and the young holiday makers who is looking for affordable solutions when visiting the island. San Antonio is also famous with its famous Sunset at Ses Variades (Sunset Strip), the villages of Santa Agnes de Corona and Sant Mateu d'Aubarca, Ses Torres d'en Luc Archaeological Site and Cala d'Aubarca Cove, Aquarium Cap Blanc, the churches of San Antonio, the village of Sant Rafael de Sa Creu, Cueva de Ses Fontanelles Cave, the Egg of Colombus.Santa Eulalia, also known as Santa Eularia des Riu is located on the centre east coast of the island and has a long-established reputation as the island's gastronomic and cultural centre. The city boasts several art galleries, some of the island's best restaurants, a picturesque yacht marina but it is widely known for its palm-lined promenade running the length of the broad and sandy beach. This area is considered as one of the quieter and at the same time sophisticated destinations for laid-back holidays away from the party congestion observed in the previously mentioned areas. Es Puig de Missa is the popular sight of Santa Eulalia located on the hill crowned by a church dating back to 16th century. The charming villages of Sant Carles de Peralta, Santa Gertrudis de Fruitera and Jesus, the Markets of Santa Eulalia (Las Dalias and Punta Arabi), Ethnology Museum of Ibiza and Barrau Museum are the other popular attractions and sights.Sant Joan, also known as Sant Joan de Labritja is the most rural part of Ibiza located on the northern part of the island. The municipality hosts the lowest number of inhabitants and offers the wildest natural landscapes, great flora and fauna and with spectacular cliffs that have been declared as a Natural Area of Special Interest. The Settlement of Balafia and Cova de Can Marca Cave some of the attractions in the area.Sant Josep, also known as Sant Josep de Sa Talaia is located on the south west of Ibiza. It is the administrative town and the largest municipality of the island. The municipality of Sant Josep de Sa Talaia is the most extensive on the Ibiza island and the one that boasts the greatest number of beaches within its 80 kilometers of coastline. The town is established under the highest mountain of the island. Sant Josep shares the Playa d'en Bossa beach with the municipality of Eivissa and Sant Antoni's Bay on the west. Playa D'en Bossa is known as the place where some of the most prominent resorts of the island are located. These hotels allocate large resources to the entertainment division by developing designated spaces for this activity within the properties and converting the hotel to a multifunctional space and ultimately a destination by itself.Demand for Transient AccommodationIbiza's Airport has a very high flight frequency in the summer months and a low frequency in the low season, as a result of the market's strong seasonality. According to the Airports Council International 2013 report, Ibiza Airport has one of the highest seasonality ratios in the world. Nevertheless, it seems that this trend is changing as more low-cost carriers launch new routes with higher flight frequencies per week for a number of destinations. During the last 11 years, there has been a remarkable growth in international arrivals while domestic arrivals also grew in a more moderate pace. More specifically during the examined period, international and domestic arrivals have recorded a CAGR by 6.4% and 5.3% respectively. It is worth mentioning that only during the last year international arrivals in the island grew by almost 20% showing the potential of the island. As at the end of March 2017, three new routes were added: Sevilla, Edinburgh and Rome- Fiumicino. The routes will be operated during the summer schedule.Ibiza International AirportBasic Visitation FactorsTotal visitation to Ibiza and Formentera increased significantly from 2011 to 2016, reaching three million arrivals in 2016. This increase was primarily driven by international demand, which accounted for 78.5% of total arrivals in 2016 while domestic visitation has remained relatively stable during this period with a slight decreasing trend. Pre-bookings for 2017 show that this growth in arrivals is expected to continue the following year. Overall, statistics show that nearly 97% of all visitors are travelling to Ibiza for leisure and holiday purposes, a trend which has been consistent over recent years.Ibiza and Formentera are served by the same airport, therefore arrivals in all types of accommodation refer to both destinations. With a population of just over 7,000 and no airport, Formentera is usually quieter than its neighbor Ibiza. The island of Formentera can be reached by regular feries from the Estacion Maritima in Ibiza Town but also by tourist ferries from other parts of Ibiza during high season. Formentera has a total of 17 hotels,with 2,404 beds, 12 out of which are classified as one, two and three star properties, five are classified as four-star hotels while the island does not feature any five-star properties.The breakdown of arrivals depending on the type of accommodation is depicted in Figure 3. The CAGR for the period 2011-16 was 4.8%, driven both by the increase in arrivals in hotels and similar establishments but also by the rise of sharing economy as an accommodation choice and the subsequent increase in the number of travellers choosing to stay in rented apartments.Main Source CountriesIbiza had always been a popular destination among British and 2016 has been a record-breaking year for arrivals from the UK with almost 840,000 British, 12% up from 2015, visiting the region representing 27.7% of total. For the domestic market, Ibiza is a traditional summer destination and is well connected by plane and boat, thus it is the second most important feeder market to the island. Given the country's post-crisis economic growth, Spanish people have witnessed an increase in the domestic income giving them the opportunity to travel again to to expensive destinations like Ibiza. For 2016 Spanish tourists represented almost 22% of total visitation followed by Italians with 13% and Germany with almost 11%.SeasonalityThe seasonality in Ibiza is very pronounced with the peak season being in the summer months as the island is mainly a sun and beach destination. Figure 5 depicts the seasonality pattern of the island for the last four years based on monthly arrivals in all types of accommodation. Minor changes have been recorded to the visitation pattern of the island during this period putting a strain on the hotel industry which mainly operates from April to October. Local or regional authorities and private enterprises are trying to alter this situation by undertaking a series of measures to lengthen the tourism season like the increase of number of direct flights towards various destinations during the shoulder months, the strongest positioning of Ibiza in various niche markets (wellness, mice, adventure) by targeting sophisticated travellers seeking for differentiated experiences or the opening to new markerts that do not travel exclusively during the summer peak season and are attracted to alternative forms of tourism that could be developed off season.Hotel SupplyFigure 6 summarises hotel supply in Ibiza over the past eight years. The table below accounts for star-rated hotels only and thus excludes other types of accommodation, such as aparthotels, hotel residences, camping facilities and pensions.The majority of hotel units are of one-star, two-star or three-star classification; however, five- and four-star hotel units together constitute the ones with a significantly considerable number of available rooms and beds. During the examined period , development of five-star and four-star units has recorded significant growth demonstrating the evolution of the island to a high-end destination . In general, five-star hotel rooms and beds in Ibiza have almost doubled in number during the period of 2009-16 revealing the intensive investment interest in the region by hoteliers and investors. In 2016 the average room number of a five-star hotel was 231 while average bed number was 457. Both numbers are significantly higher than the average hotel size in 2009 (63 and 126, respectively).Branded PropertiesDespite the fact that Ibiza is considered as one of the most upscale leisure destinations within Europe, almost none international high-end brand has presence in the market. The majority of hotel properties in the island, are currently operated by Spanish companies using local brands with some of the most prominent being the following:Palladium Hotel Group is a multinational corporation established over forty years ago with the aim of promoting the island of Ibiza in Spain and across Europe. Over the years it has cemented a position as one of the best-known Spanish companies worldwide. In Ibiza they currently operate 11 properties in various locations around the island under the following brands; five under the Palladium Hotels brand featuring four-star and five-star properties dedicated to family or couple holidays with all-inclusive options; four under the Fiesta Hotel and Resorts brand featuring three-star beach hotels and resorts on the sea front targeting families and couples; one under the Ushuaia Beach Hotel brand, a five-star luxurious music-themed resort targeting young, sophisticated clubbers and one under the Hard Rock Hotel brand, a five-star property which is the first Hard Rock Hotel in Europe and franchise of the Hard Rock International Brand, operated by Palladium Hotel Group. Hard Rock Hotel with 485 rooms and Ushuaia Beach Hotel with 417 rooms, both located in Playa d'en Bossa, were former three-star properties which following extensive remodelling and refurbishment were converted to five-star resorts and since then are considered to be among the leaders of hospitality in the island in terms of innovative design, music events, operational performance and high-end services.Melia Hotels International is a local hotel company with significant international presence. It is largest hotel chain in Spain in both resort and city hotels. The company currently operates more than 370 hotels in 43 countries and 4 continents under its brands: Melia, Gran Melia, ME by Melia, Paradisus, Innside by Melia, TRYP by Wyndham, Sol Hotels and Club Melia. The company features three hotels in Ibiza; two four-star properties under the Sol Hotels brand totalling 514 rooms and one five-star under the ME by Melia brand totalling 205 rooms.Insotel Hotel Group, currently has nine hotel complexes with prime beach front locations on the islands of Mallorca, Menorca, Ibiza and Formentera (Balearics, Spain). In Ibiza they operate three properties; two five star properties totalling 568 rooms and one four-star property featuring 172 rooms.Pacha Group, the Ibiza-based company behind the world-famous nightclub franchise which has been recently sold to venture capital firm Trilantic Capital Partners for EUR350 million and is considered to be the pioneer of entertainment in Ibiza operates two properties in the island; the four-star hotel El Pacha with 55 rooms and the four-star Destino Pacha Ibiza Resort with 164 rooms.Hotel Montesol in Ibiza town was the first hotel in Spain opened under the 'Curio' brand by the Hilton Group, the only international brand with presence in the island. It opened in 2016 the 'Gran Hotel Montesol Ibiza' and has 33 rooms while it is one of the few properties in the island open all year round.Following the remodelling of an already existing property Iberostar Hotels and Resorts entered the market of Ibiza in 2016 with a four-star hotel located in Santa Eulalia featuring 188 rooms.Recent and Forthcoming Tourism DevelopmentsIbiza's most recent addition five-star supply is Nobu Hotel Ibiza Bay, a member of Nobu Hotels which opened on 30th June 2017 on Talamanca Bay. The hotel features 152 rooms and is operated by MC Hotels;Sir Joan hotel, a five-star property located on Talamanca opened in June 2017 and features 38 rooms;7 Pines Resort, a five-star resort complex due to open in 2018. Located above Cala Conta Beach, in the southwestern part of the island, 7 Pines Resort Ibiza will offer a choice of three villas, 42 suites and 160 apartments, accommodating a maximum of 500 guests. Some of the holiday properties also offer private plunge pools and spacious terraces.Cine Serra, a former cinema located in Ibiza city will open as a five-star hotel in 2018 featuring 50-60 rooms.Six Senses Hotels Resorts Spas has announced the development of Six Senses Ibiza. Expected to open in 2020, the resort is located on the northern tip of Ibiza, Spain in the Cala Xarraca B. The resort will feature 134 rooms and nine private villas for sale located above the resort.It is rumored that several other high-end brands are looking for investment opportunities in Ibiza's hotel market.High-end Hotels PerformanceFigure 7 summarises the important operating characteristics of a sample of high-end hotels in the broader region of Ibiza. The chart sets out the average occupancy, average room rate, and rooms revenue per available room (RevPAR) for a sample of 13 major upscale hotel properties representing in total 2,896 hotel rooms. For consistency reasons, despite the seasonal operation of the specific hotels all occupancy percentages refer to 365 days of operation.Performance of the selected hotels in Ibiza throughout the examined period is showcasing a constant improvement. During the last four years occupancy and average rate have witnessed a CAGR of 17% and 1% respectively leading to cumulative increase of the RevPAR by 19%. Occupancy levels have remained relatively stable throughout this period due to the seasonal limitations the area is confronting. At the same time, the island is witnessing an unprecedented growth which is clearly reflected in the performance of the average rate. By not being able to absorb the demand during the high season, hotel executives are constantly pushing for higher rates leading to the increase of the average rate for 2016 to over EUR400. Aggregated seasonal occupancy for 2016 was recorded at 79% for 183 operating days . Three top performers in the market reached occupancy levels between 78% and 82% and ADR between EUR500 and EUR650. Preliminary data indicate that this growth in the average rate is going to continue the upcoming season. The island's continuous progress has also resulted in an increased appetite for hotel investments in the area which has led to the introduction of several high-end properties in the hotel market supply. Nonetheless, the region lacks a significant number of international hotel brands which could boost its upscale profile and recognition, thus leading to even higher levels of sales efficience and operating performance.ConclusionIbiza is a well-established destination with strong levels of occupancy and a high number of repeated guests, mainly in the summer months. Over the past years, the destination has managed to differentiate itself from its previous reputation as an island mainly offered for low-budget, party-centric holidays and is now considered as one of the most upscale destinations within Europe. Despite the highly-priced holidays that Ibiza offers, seasonal occupancy especially in the most famous parts of the island, reaches peak levels which leads to a very congested destination making it hard for tourists to move from one place to another. Due to the high levels of tourist demand, new international flights are announced on a yearly basis while the destination is in the process of penetrating new prosperous markets. UK is Ibiza's main international source market and therefore generates the strongest demand. However the recent Brexit has created concern for the future of the specific market in the island and the impact it will have on the visitors' travel patterns. With all the recent high-end tourism-related developments in the island, ranging from luxury meditation retreats on the north to music-themed sophisticated resorts in the south, we can easily justify why Ibiza is included in the prime leisure destinations in Europe. During the last decade lower category hotels have been either closing or reconverted to high-end properties. This, combined with the absence of branded properties and the efforts that are being made to overcome the seasonality issues, witnesses that Ibiza is yet to unfold its full potential as a leading destination.
HVS ·14 September 2017
Please note that the study results are not indicative of the impact an individual brand may have on a hotel's overall profitability because only the costs, and not the benefits of the franchise affiliations, have been analyzed. Furthermore, the study does not reflect, nor does it claim to address, operating results of any one brand or any particular brand affiliation upon any single hotel property. The 2016/17 U.S. Franchise Fee Guide is meant to illustrate a basic comparison among franchise fees charged by participants.HVS has extensive experience with assisting clients in selecting the appropriate franchise and/or management brand for their proposed or existing hotels. This service also includes assisting with or managing the negotiations in coordination with experienced attorneys and other industry professionals.Types of Hotel Franchise FeesBrand attributes play a crucial role in a hotel investor's choice of franchise affiliation. When evaluating a potential hotel franchise, one of the important economic considerations is the structure and amount of the franchise fees. Second only to payroll, franchise fees are among the largest operating expenses for most hotels.Hotel franchise fees are compensation paid by the franchisee to the franchisor for the use of the brand's name, logo, marketing, and referral and reservation systems. Franchise fees normally include an initial fee with the franchise application, plus ongoing fees paid periodically throughout the term of the agreement.Summary of FindingsDisclaimerHotels are complicated investments. Selecting an appropriate franchise affiliation for a property entails exhaustive research and investigation by an investor. The information presented in this guide was developed to provide insight into franchise-fee structures and should not be relied upon by an investor other than as a preliminary resource. HVS has researched and gathered data from authoritative sources, and all efforts have been made to verify the accuracy of these data; however, given variances in reporting methods and franchise terms, HVS cannot guarantee the accuracy of all the data contained in this study. Finally, it should be noted that the 2016/17 version of this guide is not necessarily comparable with previous versions because of the new methodology of calculating franchise costs, which considers historical data for each brand and does not subject all brands to uniform assumptions.Click Here for a Complimentary Copy of the 2016/17 HVS Franchise Fee Guide
HVS ·13 September 2017
Hotel Market Update on TaiwanWith increasing strained relations between Beijing and Taipei, Taiwan has been reducing its dependency on mainland China by improving its tourism relationships with other countries. Though the number of Mainland Chinese visitors fell dramatically, the number of visitor arrivals to Taiwan decreased only modestly in the second quarter of 2017 to 2.6 million. Visa exemptions to Southeast Asian visitors, improved air connectivity, and promotions around the country's tourist spots have expanded the scope and diversity of Taiwan's tourism economy. Overall, arrivals from all the major feeder markets except mainland China experienced growth.Overall Visitor ArrivalsMainland China continues to be the largest feeder market to Taiwan with 23.4% of the market share; however, the number of Chinese visitors has dwindled by 37.9% to 605,000 this quarter from 974,000 in the same quarter last year. This registers by far the lowest number of Chinese tourists visiting Taiwan since 2012. Since the Democratic Progressive Party's Tsai Ing-Wen took office as President in May 2016, the tension in cross-strait relations has increased. As such, mainland Chinese visitation and expenditure levels in Taiwan were severely affected.To offset the steep fall in mainland Chinese visitors, Taiwan pushed for better relationships with other feeder markets, especially Southeast Asian countries. Excluding mainland Chinese visitors, overall visitor arrivals to Taiwan recorded a strong 21.0% YoY growth in visitor arrivals in the second quarter of 2017 given the relaxed visa policies for ASEAN member states. Starting from September 1st 2016, passport holders from ASEAN member states (Cambodia, Indonesia, Laos, Myanmar, the Philippines, and Vietnam) and India can benefit from a 30-day visa-free stay in Taiwan if they have previously obtained visas from any of a number of designated countries including Australia, Canada, Japan, Korea, the United Kingdom, and the United States in the past decade. The results of this initiative are now being realized through the remarkable growth seen from these countries in this quarter. Specifically, Vietnam recorded an impressive YoY surge of 119.2% to about 100,000 visitors, compared to last year with only 46,000 visitors. Malaysia, which accounts for a 4.9% of market share, registered a 21.0% YoY increase to 128,000 travellers; while its neighbour, Singapore, which accounts for a 4.0% market share, recorded a 7.3% YoY increase to 102,000 visitors. The Philippines and Thailand also encountered impressive surges of 94.5% and 72.8%, leading to 85,000 and 79,000 visitors, respectively. Notably, these visitors also include a share of workers for Taiwan's many factories.In the second quarter of 2017, Taiwan received about 467,000 visitor arrivals from Hong Kong and Macau, a 23.2% YoY increase from same period last year, making them the second largest source of foreign visitors with 18.1% market share. Taiwan has always been one of the top choices for Hong Kong travellers, due to its location and affordable airfare options. Similarly, accessibility to Taiwan for Macau residents has greatly improved with initiatives such as streamlining the permit and visa application processes, as well as opening new flights with budget airline options by Tiger Air and Far Eastern Air Transport.Apart from targeting Southeast Asian countries and the two Special Administrative Regions of China, the county's tourism industry also reached out to other countries, as a way to mitigate the shortfall from mainland Chinese visitors. Japan recorded a 2.4% YoY growth to 415,000 travellers, while Korea recorded a growth of more than 25.2% to 236,000 visitors. The growth from Korean visitors had been facilitated by the increasing presence of Taiwanese tourist sites in Korean television shows and films, as well as the improved air connectivity with more direct and budget flight options. Finally, the fifth largest source of international visitors, the United States, registered a 11.0% YoY increase to 149,000 visitors, accounting for 5.8% of market share. These trends show a successful rebalancing of the Taiwanese tourism economy to other source markets, supported by favorable government policies.Taiwan Hotel Market PerformanceIn the second quarter of 2017, the overall Taiwan hotel market experienced a negative YoY growth in RevPAR. The compound annual RevPAR growth rate from 2014 to 2017 of Taipei hotels was -4.6%, Kaohsiung hotels -2.9%, and Taichung hotels -0.7%.The Taipei hotel market registered 71.1% occupancy, a 2.3 percentage point increase from last year. Average rate decreased to NT$4,361, while RevPAR attained NT$3,102, a 1.2% YoY decline. Thus, the rebalancing of the tourism economy did come at the cost of average rates among Taipei hotels, partially offset by higher occupancy levels.The Kaohsiung hotel market registered 61.1% occupancy, an 8.5 percentage point YoY decline. Meanwhile average rate dropped to NT$2,297, and RevPAR registered NT$1,405, a drastic 14.4% YoY decline. Kaohsiung in the past had benefitted from mainland Chinese tour groups that travelled around the island. Visitors from growth feeder markets tend to stay in Taipei only or take shorter excursions.The Taichung hotel market registered 65.3% occupancy, a 1.8 percentage point YoY decline. Average rate slightly increased to NT$2,427, while RevPAR registered NT$1,585, a 1.3% YoY decline. Taichung, due to its business activity, was less exposed to the change in visitor arrivals, however, did register a modest correction.Overall for the first half of 2017, the slow growth of visitor arrivals to Taiwan and the weakening hotel performance can be mostly contributed to the drastic decline of Chinese travellers. Moving forward, the trend of a decrease in Chinese tour groups is expected to continue until the end of 2017. The increase in visitation from other, regional source markets will help to partially offset this trend. In the long-term, Taiwan needs more innovation in its tourism resources to be a strong contender in capturing higher-rated FIT demand.
HVS ·12 September 2017
The fifth edition of the Indonesia Hotel Watch highlights Indonesia's current hospitality landscape, analysing domestic and international demand and hotel supply dynamics of classified and non-classified hotels.
HVS ·12 September 2017
Silicon Valley has previously been noted as one of the fastest-growing urban economies in the United States. Unemployment in this market has continued to decline since the recession, closing out 2016 at 3.8%, down from 4.3% in 2015 and 5.3% in 2014, approximately 1.1% lower than the national average. However, venture capital investment in the region has begun to show some slowdown, with deal activity at an eight-quarter low in Q4 2016, and remaining relatively flat in Q1 2017. According to REIS, the supply for office space has begun to outpace demand, with vacancy rates projected to increase to 17.2% in 2017, up from 16.8% in 2016 and 15.9% in 2015. However, average asking lease rates continue to improve and are currently at the highest levels achieved during the last decade, with sustained growth anticipated through the near term. Meanwhile, airlift throughout the greater San Francisco Bay Area has also improved, with year-over-year increases in passenger traffic at the airports in San Francisco, San Jose, and Oakland. Major indicators for the second quarter of 2017 reflect continuation of these trends, which bodes well for the market's lodging industry.Commercial DevelopmentsTech companies continue to dominate the local economy of Silicon Valley, with a number of key employers expanding and investing in new office space and operations. Although some construction is still ongoing, Apple's new $5-billion headquarters, located approximately one mile east of the current campus in Cupertino, opened in April 2017. When completed, Apple Park will house more than 12,000 employees in a four-story circular building that totals roughly 2,800,000 square feet.In June 2017, Google announced tentative plans to develop up to six million square feet of office and R&D space with Trammel Crow near the Diridon Transit Station in San Jose. The San Jose City Council has agreed to negotiate exclusively with Google for the sale of 16 parcels on Montgomery and Autumn Streets. While negotiations have been tentatively scheduled through July 2018, an application to begin the project's development and land-use entitlements following the completed sale could also take an extended period of time, with construction not likely to commence for at least another two years.On the north side of Silicon Valley, Facebook, located in Menlo Park, is also looking to expand with its new Willow Campus. In its initial plans submitted to the Menlo City Council in early July 2017, the mixed-use development integrates its office expansion plans with a grocery store, a pharmacy, and 1,500 housing units, of which 15% will reportedly be offered at below-market rates. Facebook has reportedly pre-leased 700,000 square feet of office space currently under construction adjacent to the 250-room Hotel Nia, Autograph Collection, which is also under construction near Marsh Road and U.S. Highway 101.In May 2017, LinkedIn presented plans for a new East Whisman office campus in Mountain View, totaling nearly 1.1 million square feet. The initial plans call for the construction of three new, six-story buildings, as well as merging several existing office buildings and parcels into the site, creating a new headquarters for the company.Peninsula Corridor Electrification Project - Caltrain ModernizationConcurrent with improvements to the greater San Francisco Bay Area's economy, Silicon Valley has realized a substantial increase in population over the last decade. According to the 2017 Silicon Valley Index, Silicon Valley's population (San Mateo & Santa Clara Counties) grew 7.5% between 2010 and 2016, more than 2% higher than the average population growth for the state of California. As the local population continues to grow, Caltrain has experienced a similar increase in ridership, with strong year-over-year increases in weekday commuters between 2011 and 2016.To accommodate these increases in ridership, as well as to mitigate delays and improve service, Caltrain has announced a $2-billion modernization program that includes electrifying 51 miles of track, converting diesel-hauled to Electric Multiple Unit (EMU) trains, and implementing a new control system; benefits include more frequent trains, as well as doubling ridership capacity. When completed in 2020/21, the project will upgrade the performance, efficiency, capacity, safety, and reliability of Caltrain's commuter rail service. Although the line is anticipated to be utilized primarily by residents, it should ease traffic congestion and facilitate transportation throughout Silicon Valley and the San Francisco Peninsula.Hotel SupplyAccording to Smith Travel Research (STR), Silicon Valley's hotel inventory currently comprises roughly 46,800 rooms across nearly 420 properties. Of this set, approximately 60% belong to a brand or major parent company, with the remaining 40% operating as independent hotels. Of the roughly 38,000 branded rooms, Marriott International and Hilton Inc. combined operate approximately 48%. InterContinental Hotels Group, Hyatt Hotels Corporation, Wyndham Hotels & Resorts, and Extended Stay America also have sizeable representation in the market, ranging between roughly 4% and 8% market share.Based on recent HVS surveys of market participants, the greater Silicon Valley market achieved significant year-over-year RevPAR growth between 2010 and 2016. However, occupancy has begun to moderate downward, attributed to the entrance of new supply. Furthermore, San Francisco's Moscone Center is currently under renovation, resulting in less compression and fiercer competition for meeting and group demand between hotels in the San Francisco and Silicon Valley submarkets. Similarly, average rate growth has also experienced a modest slowdown, partially attributed to the normalization of rates in the first quarter of 2017 because of the Super Bowl's inflated rates during the same period last year, as well as further discounts to attract and maintain group demand. However, with occupancy close to capacity on Monday through Thursday nights, local operators will likely continue to pursue a rate-driven strategy through the near term.The greater Silicon Valley market continues to be driven by strong weekday demand from major corporate accounts, such as Google, Apple, Facebook, Oracle, LinkedIn, eBay, PayPal, and Samsung. While weekend demand continues to remain a challenge in most submarkets throughout Silicon Valley, with rates discounted significantly to sustain occupancy, Levi's Stadium drew a crowd of 71,088 fans for Super Bowl 50, selling out a number of hotels throughout the San Francisco Bay Area. Reportedly, the event attracted over one million visitors to the Bay Area in late January/early February 2016.The following table illustrates a list of new hotels that have opened since January 2014.As previously described in our 2015 article, the market is starting to see a significant increase in new supply, particularly in the select-service and extended-stay products that cater to Silicon Valley's strong commercial and group market segments.Opened in September 2015, the Aloft Santa Clara is located on the far north side of the city, proximate to the 430,000-square-foot America Center office development. The Clement Hotel Palo Alto is a high-end, exclusive boutique hotel located on the western edge of the city. Featuring a unique luxury product, this property is owned and managed by Pacific Hotel Management, which also owns and operates the adjacent full-service Westin and Sheraton properties. One of the first hotels to represent the brand's new Del Sol Prototype, the La Quinta Inn & Suites Morgan Hill features a distinct design meant to maximize revenue per square foot while maintaining a competitive cost per key. After numerous delays, the AC Hotel by Marriott opened in early 2017 in Downtown San Jose. This property is the first of several AC Hotels currently under development in the greater San Francisco Bay area. Opened in March 2017, the Courtyard by Marriott Redwood City was developed by OTO Development; with five other hotels, including three Marriott- and two Hilton-affiliated properties, in various stages of development in just the greater Silicon Valley market alone, it's no surprise that the Spartanburg-based company recently was named Marriott International's 2017 CONNECT Developer of the Year and Hilton's Focused Service Developer of the Year.New SupplyAs Silicon Valley maintains its status as one of the top-performing lodging markets in the United States, developers continue to propose new projects, despite the high barriers to entry and challenging entitlement processes in California. Some of the proposed projects have recently broken ground, while others have received preliminary approval, received entitlements, and/or are facing substantial hurdles that will require a lengthy development timeline. Of the 85 hotels (roughly 13,150 rooms) that have been proposed for development, 25 projects (approximately 4,000 rooms) have begun site work, broken ground, or are currently under construction.With numerous commercial and residential projects under development in the greater San Francisco Bay Area, construction costs have been increasing significantly year-over-year. According to JLL's 2016 Q4 U.S. Construction Outlook, cities in the Bay Area trail only New York in terms of building costs. As such, many hotel developers have turned toward branded limited-service, select-service, and extended-stay properties that favor lower development costs and efficient layouts of the guestrooms, public spaces, and back-of-house areas. Some notable projects currently under construction include the following: Located within the Menlo Gateway mixed-use development, the Hotel Nia, Autograph Collection is a luxury, full-service hotel that is expected to cater to Silicon Valley's individual business travelers. Managed by Sage Hospitality and offering 20,000 square feet of flexible meeting space, the eleven-story hotel will benefit from its proximity to major employers in San Mateo County, such as Facebook and Amazon, when it opens in early 2018.The Hyatt Centric is part of the second phase of development at the 56-acre The Village at San Antonio Center. The 168-room hotel is being built in conjunction with two six-story office buildings totaling 448,000 square feet. The Embassy Suites by Hilton is part of the first phase of the Bay 101 Technology Place development. The seven-story hotel is being built adjacent to site of the Bay 101 Casino relocation. The second phase of development will reportedly include a nine-story, 242,000-square-foot office building; a ten-story, 240-room hotel; and an eight-story garage with 1,325 parking stalls.The Grand Hyatt SFO represents a partnership between the San Francisco International Airport and Hyatt Hotels Corporation. This 351-room hotel will be built on the 4.7-acre site of the former Hilton Hotel that was razed in the mid-1990s. With a ground-breaking ceremony held late June 2017, construction on the new hotel is expected to be completed by July 2019. Located at the entrance of the SFO, the hotel will reportedly be built to LEED Gold standards and feature 15,000 square feet of meeting space, a Grand Club lounge, a full-service spa and health club, and an indoor pool and whirlpool. The hotel will also feature direct access to the airport's AirTrain light-rail system.Hotel TransactionsWhile transaction activity in Silicon Valley has slowed somewhat since the sales frenzy in 2014, a noticeable shift has occurred from the transfer of select-service and extended-stay hotels to full-service properties. As one of the last cities left in the Bay Area with significant portions of land available for new development, San Jose has become Silicon Valley's newest hotspot. Within the last year, Downtown San Jose has seen the sale of many of its major hotels, including the Hyatt Place, Westin, Hilton, and Marriott. In anticipation of major commercial projects, such as Google's San Jose Diridon development, real estate investment trusts (REITs), private investment funds, and ownership groups have been quickly targeting these strong, nationally branded hotels that cater toward corporate accounts and group demand.Other major transactions within the last two years include The Blackstone Group's sale of the Ritz-Carlton Half Moon Bay to China's Anbang Insurance Group Co. as part of the Strategic Hotels & Resorts portfolio; the Sofitel San Francisco Bay (now rebranded as a Pullman Hotel) purchased by CBRE Global Investments; and the Marriott San Mateo San Francisco Airport, acquired through a subsidiary of Oracle in September 2016. While the sales of select-service assets have slowed significantly, Hersha Hospitality's 2016 purchase of T2 Development's Courtyard by Marriott in Sunnyvale at a price of over $500,000 per room illustrates how desirable these efficient, strong cash-flow performing assets continue to be.As noted in our previous 2015 article, investors that are eager to enter the market are willing to purchase properties needing renovation, repositioning, and possible rebranding, rather than working through the lengthy development process or undertaking riskier new construction projects. Some notable conversions include the renovation and rebranding of the former Four Points by Sheraton to the Aloft brand in southwest San Jose, the repositioning of the former Sofitel San Francisco Bay to Accor's Pullman Hotel, and the conversion of Milpitas' former Beverly Heritage Hotel to the full-service Sonesta Hotels & Resorts brand. Within Silicon Valley's limited-service sector, there have been a number of properties that have dropped their brand affiliations to be repositioned as small, boutique hotels. These include the conversion of the former Quality Inn to The Nest Palo Alto, the former Days Inn to The Palo Alto Inn, and Mountain View's former Best Western Plus to the Mountain View Inn. Given the current strong demand in cities such as Palo Alto and Mountain View, some owners are able to eliminate franchise fees and still maintain reasonable RevPAR levels.The Silicon Valley market remains one of the strongest lodging markets in the United States. Supported by a diverse economy, the market will benefit from the planned developments and expansions at numerous major employers that will improve upon the existing foundation for future economic growth. Despite the anticipation of new supply, record levels of demand have allowed operators to continue to push average rates. Overall, the near-term outlook for the Silicon Valley market remains positive. PwC MoneyTree Q1 2017