HVS ·28 February 2018
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HVS ·28 February 2018
Seychelles Tourism Records Stable GrowthSeychelles continues to prove its popularity in the European market as a hideaway holiday destination while gaining reputation in the Middle Eastern and Asian markets.Republic of Seychelles is an archipelago of 116 islands located in the Western Indian Ocean east of East Africa. Across all 116 islands, Seychelles has a total land area of 455 square kilometers. The country consists of two distinct island groups: the Mahe group, in the north, and a chain of low-lying coral islands stretching away to the south. All of the country's principal islands belong to the Mahe group; they include Mahe Island (the largest at 27 kilometers long and 11 kilometers wide), Praslin Island, Silhouette, La Digue and 28 smaller islands. The 83 coral islands are largely without water resources, and most are uninhabited. The population of Seychelles (2017 estimate) is 93,920. Victoria, on Mahe Island, is the capital, principal city and leading port of Seychelles. While more than 75% of the country's population lives on Mahe Island, about 10% on Praslin, and others on La Digue and the outer islands.ANSE INTENDANCE, MAHEVisitor ArrivalsSeychelles is known for its coral beaches, opportunities for water sports, UNESCO heritage sites, its abundant wildlife and nature reserves and its year-long tropical climate. The government of Seychelles strictly controls tourism development in the country to protect and conserve the fragile ecosystem of the islands, and also to enable the long-term sustainability of the sector, which depends heavily on the country's ecological offerings. According to the National Bureau Statistics, 349,861 visitors travelled to Seychelles in 2017, representing a growth of 15.4% between 2016 and 2017. Between 2007 and 2017, international arrivals to Seychelles grew at a compound annual growth rate (CAGR) of approximately 8.1%. As shown above, Seychelles demonstrated continuous growth over the years, with the exception of the global economic crisis in 2008 and 2014.Seychelles International AirportSince its opening in 1971, the Seychelles International Airport (SEZ) has been contributing to the healthy performance of the tourism sector with the arrival of new airlines and increasing flights of existing routes. As of January 2018, international airlines that service Seychelles include Air Austral, Air Seychelles, Condor, Emirates, Ethiopian Airlines, Etihad Airways, Kenya Airways, Qatar Airways, SriLankan Airlines. These flights connect Seychelles with international hub cities such as Bombay, Dubai, Istanbul, Johannesburg, and Paris. Seasonal flights are currently offered by Arkia, Austrian Airways, and Sun D'Or from Tel Aviv and Vienna.In 2018, Seychelles International Airport will expand their flight schedule. British Airways will begin to offer seasonal flights from London in March; Joon will begin to offer regular flights from Paris in May; and Edelweiss Air with seasonal flights from Zurich in September. With the upcoming additional flights, visitation to Seychelles is expected to increase.Major Feeder MarketsDespite the financial crisis in the Euro zone over the past few years, Europe still account for the lion's share of the Seychelles' tourism market (62%). This implies that the seasonal demand is pegged to European holiday periods. The key feeder markets are France, Germany, and Italy which account for more than half of the European market. France continued to be the largest feeder market, totalling 14% of total international arrivals in 2016, with a 15% increase of visitors compared to arrivals in 2015. In thesame year, arrival growths from Italy grew by 5% while Germany increased by 10%.To diversify from the mainstream inbound tourism markets, Seychelles has changed its tourism strategy to tap into new and emerging markets that have latent potential for growth, such as Asian markets like the Middle East, China, and India instead of focusing its marketing efforts on its primary and traditional tourist markets. United Arab Emirates (UAE) accounted for 8% of the total arrivals in 2016 while China and India recorded 5% and 4% respectively. Seychelles Tourism Board hopes to strengthen this market with flights from Abu Dhabi, Dubai, and Bombay.SeasonalityFrom data obtained from the National Bureau of Statistics and historical records, we have analysed the seasonality of visitor arrivals from the period 2007 to 2017. The peak season lies from October through April, coinciding with the best months for diving and fishing and holiday seasons. In particular, the period from February to April see a large increase in visitor arrivals because of the winter in Europe, as do the summer months of July and August. The low season falls from May to June, even though this time of the year is characterised by drier weather and cooling breezes.Purpose of VisitAs expected, the majority of the visitors travel to Seychelles for holiday purpose. In 2016, leisuretravellers accounted for approximately 94% of the total arrivals. Business segment represented about 3% of the total arrivals. 2% of the arrivals travel to Seychelles for other purposes such as crew and transit. Following figure provides a breakdown of overnight visitor arrivals by purpose of visit.Hotel MarketIn 2007, Seychelles market recorded 2,710 rooms available. As the destination slowly gained interest from both guests and investors, Seychelles doubled its supply to over 5,700 rooms in 2017. In 2014, the market recorded a 42.6% supply increase due to hotel openings such as the AVANI Seychelles Barbaron Resort & Spa, Eden Bleu Hotel, and Savoy Seychelles Resort & Spa. Aside from the resorts openings, there was also a noticeable increase in guesthouses and hostels around the two major islands, Mahe and Praslin. Since the supply boom over 2014 and 2015, the supply maintained a modest growth rate of around 5% in 2016 and 2017.In terms of occupancy, the Seychelles market has registered a relatively stable performance over the years. Albeit the strong supply growth, occupancy level generally recorded around 60%. In 2014, occupancy level slightly weakened due to the new supply. However, demand grew in par with supply in the following year, resulting in a 62% marketwide occupancy in 2015. With the rise of visitation to Seychelles in 2017, we estimated an occupancy level of 64% for 2017, indicating a 5% increase in roomnights sold.Marketwide OccupancyThe below figure illustrates the monthly marketwide occupancy for the past eight years. The monthly occupancy breakdown for Seychelles hotel market generally follows the visitational seasonal trend. February is the highest occupancy month, as it is the most severe winter month in Europe. June is the slowest month as a result of the comparatively cooler weather in Seychelles.PRASLIN, SEYCHELLESOver the years, the average length of stay Seychelles has averaged around 10 days. From 2009 to 2016, the lowest monthly average length of stay record was 9.0 days in February 2014 and highest was 11.8days in August 2010. Although some guests prefer to stay in more than one resort during their trip, they typically remain in Seychelles for more than a week for a complete island getaway experience.ConclusionOver the years, Seychelles maintained as a well-recognized island for European markets such as the French, German, and Italian. Despite the mediocre performance of the direct flights from Beijing, Seychelles Tourism Board continued to promote in China and the Middle East as emerging markets for Seychelles. With other holiday hotspots are impacted by natural disasters, political turmoil, and terrorist attacks, Seychelles proves to be a fairly safe country for travellers from around the globe. All in all, Seychelles tourism is expected to sustain a positive progression in the future years.
HVS ·23 February 2018
This market pulse provides an overview of the tourism and hotel market in Geneva, Switzerland. It discusses recent tourism trends, challenges encountered in light of the currency situation and the impacts on hotel performance. This article also provides a summary of the extensive hotel pipeline which has the potential to make the city a more affordable destination to visit.
HVS ·19 February 2018
Business and IndustryTourism has been the cornerstone of the local economy for some time; however, this sector has realized notable growth during the last several years, as a younger generation is discovering the city and new destinations, such as the Hard Rock Hotel, Hacienda Beach Club, and the Ace Hotel & Swim Club, appeal to this demographic. The popularity of special events and festivals, such as the Coachella Valley Music & Arts Festival, is intensifying, which bodes well for the local economy. The Greater Palm Springs Convention & Visitors Bureau reported that tourism in the Coachella Valley has an annual impact of over $6 billion and is responsible for one in every four jobs. Moreover, new stores, restaurants, and other commercial developments have been developed after a period of little to no growth. Chic hotel projects such as Kimpton's The Rowan, ARRIVE Palm Springs, The V Palm Springs, and Marriott's Autograph Collection Hotel PASEO have recently opened, while others such as the Hyatt Andaz and the Virgin Hotel have resumed construction. Residential construction has also regained traction in recent years, with several projects currently active throughout the Coachella Valley. The Valley is also an important site for renewable energy, with major wind-farm installations located in the San Gorgonio Wind Park just north of Palm Springs. Activity related to the maintenance, development, and harvesting of energy from the over 2,700 windmills is a major economic contributor.TourismTourism in the Coachella Valley is strongest from January to May, when the area enjoys cooler desert temperatures but a warmer climate than most other cities; the weather is especially welcoming to those visiting from the northern regions. The area's popularity as a resort, golf, and tennis destination makes tourism a critical component of this market's economy. The Coachella Valley is well known for several signature events, including Coachella Valley Music & Arts Festival, Stagecoach Country Music Festival, Indian Wells Masters/BNP Paribas Open, Modernism Week, the Palm Springs International Film Festival, April's LGPA Kraft Nabisco Championship, and the White Party. The BNP Paribas Open tennis championship draws over 400,000 visitors to the Valley in March at the Indian Wells Tennis Garden, while The Coachella Valley Music & Arts Festival and Stagecoach Country Music Festival combined attract upwards of 245,000 visitors to the Valley every year in April. Downtown Palm Springs is a popular tourist destination for shopping, dining, and entertainment, as the the area is replete with a wide variety of dining options and eclectic boutiques. The Palm Springs Art Museum is another popular downtown venue, which features an impressive collection of Marc Chagall, Pablo Picasso, and Andy Warhol pieces, among others, and a 430-seat theater. Downtown also features the significant Spa Resort Casino, which offers an expansive gaming floor and special entertainment events, as well. The Palm Springs Aerial Tramway is the world's largest rotating tramcar. The tram offers a ten-minute ride into the cliffs of Chino Canyon and is a popular attraction for visitors who may be camping in the summer or cross-country skiing in the winter. About 20 miles northwest of Palm Springs are the popular Desert Hills Premium Outlets, featuring over 170 stores. El Paseo is another popular shopping destination, located roughly ten miles southeast of Palm Springs in the city of Palm Desert. The Coachella Valley features approximately 125 golf courses and clubs, thus earning it the title "Golf Capital of the World." Notable changes related to the area's golf courses include the planned construction of a 140-luxury hotel and spa, as well as a four-star, 200-room lifestyle hotel at the SilverRock Resort in La Quinta; both hotels will be affiliated with Montage Hotels & Resorts. Swimming, tennis, horseback riding, and hiking in the nearby desert and mountain areas are also popular forms of outdoor recreation in the area. The Little San Bernardino Mountains, the Colorado Desert, and the Mojave Desert are the three unique ecosystems that make up Joshua Tree National Park. This 800,000-acre park offers unprecedented displays of desert wildlife, plants, and rugged terrains.Hotel Market SegmentationThe Coachella Valley is primarily dependent on FIT-related leisure demand. Leisure demand constitutes approximately 65% of the overall accommodated demand in the Valley. The balance comprises demand from the commercial (15%) and group (20%) segments.Hotel Market PerformanceThe Coachella Valley is undoubtedly operating with the highest occupancy and average rate (ADR) levels experienced in the last decade. With the market's recent increases in supply, further occupancy growth will likely be muted, as the new supply serves to moderate the market's strong demand growth. ADR growth should continue to increase in the near term as seasonality factors will limit further occupancy growth, forcing hotels to maximize revenue through an increase in average rates. The recent openings of new high-quality hotels, particularly those branded with luxury affiliations, as noted above, should also serve to increase the market's rate positioning and cachet with well-heeled travellers, and to attract demand to the market that would not have otherwise visited were it not for the availability of the new properties.Proposed SupplyThe Coachella Valley hotel market, offers approximately 140 hotels with 15,000 hotel rooms. The Coachella Valley, and specifically, Palm Springs, is undergoing a renaissance in its hotel sector. Below is a selection of publicly announced projects that have recently opened, are under construction, or proposed for the market.444As of year-end 2017, approximately 784 new hotel rooms had opened in the market, representing a 5% increase in supply. An additional 801 rooms remain under construction, with planned hotel openings in 2018 and 2019. A larger number of projects remain proposed, totaling 791 rooms. Assuming all proposed projects open by 2020, this would represent an additional increase in supply of approximately 10% over three years. Considering the market has experienced an increase in demand of nearly 50% since the last recession of 2009, it is safe to assume that any future supply increases will have minimal impact on the market's performance.OutlookThe outlook for the Coachella Valley remains positive. The Convention & Visitors Bureau published a goal to increase tourism visitation to the Valley from 12.8 million visitors to 16.8 million by 2026, representing a 30% increase over the next eight years. With this market's rapidly growing popularity as a tourism destination, replete with attractions, events, and a steady increase in demand, at the current pace, the market will certainly meet this goal in the next eight years, justifying the current renaissance in the market's hotel sector and necessitating the planned expansion or new supply proposed for the market. Our relationships and frequent interactions with major lending institutions across the nation reveal a growing apetite from the lending sector to finance high-quality assets in this market given the strong market fundamentals, as shared in this article, further incentivizing those development teams with an interest in the Coachella Valley.
HVS · 8 February 2018
AlixPartners, AM:PM and HVS have published the Q3 2017 Hotel Bulletin. The Hotel Bulletin analyses demand, supply, pipeline and transactions in the hotel market in 12 UK cities. Includes a focus on UK performance over the last five years.
HVS · 7 February 2018
Downtown Portland Lodging Market TrendsThe following table details key rooms-revenue metrics for Downtown Portland between 2013 and 2016. As of 2007, Downtown Portland contained four good-quality hotels with roughly 550 rooms. A fifth hotel of approximately 200 rooms operated on the margins in a state of disrepair. Occupancy and average rate (ADR) levels were healthy and stable, but short of eye-popping. Then, beginning in 2009, affiliates of Residence Inn by Marriott, Hampton by Hilton, Courtyard by Marriott, Hyatt Place, and Marriott's Autograph Collection opened successively, and the derelict hotel noted above was closed, rehabilitated, and expanded into a 289-room Westin. Supply grew at an average annual rate of 9.1% between 2009 and 2016, with most of the growth realized in 2014 and 2015 (as noted above). The rapid expansion might have turned out as another example of the hotel industry getting ahead of itself; another instance of aggressive development and profligate lending. But something else happened instead. By 2016, the results were in, and they were unequivocally positive. In that year, the first full calendar year of operation after the last of the new hotel openings, Downtown Portland reached new ADR heights and near-peak occupancy levels.A Working Waterfront and Cobblestone StreetsDowntown Portland is peninsular, with three coasts. The Downtown district is surprisingly hilly; plows and salt keep it navigable in winter. The centerpiece is the Old Port, a multi-block historic district of cobblestone streets and an exploding restaurant scene. The architecture and streetscapes provide a distinctive sense of place, and the waterfront, with its rickety wharfs and piers, remains a working port. Despite the many charms of the Downtown core, Greater Portland can also be relegated to third-tier-city status: one characterized by a stable, slow economic growth rate. The Downtown district contains a small and static inventory of office space. Most of the region's major employers are based in the suburbs or nearby towns with their own character, like Freeport, home of L.L. Bean. With no convention center, the city's only large-scale gathering space is a civic center that opened in 1970s. ZZ Top was the first headliner. The arena is best known as the home of minor league hockey's Portland Pirates. Often, when the opening of new hotel inventory coincides with material demand growth, the group segment does the heavy lifting. New hotels with significant meeting space have a means of self-generating occupancy. Among the new hotels in Downtown Portland, however, only the Westin has a significant allotment of meeting space. Construction of the other hotels was based on faith in surplus transient demand, suggested mainly by the strong performance of the existing Hilton Garden Inn affiliate, the lone downtown hotel with an esteemed brand. The Old Port's emergence as a dining destination served as a positive indicator, as well. But against the burden of filling roughly 1,000 new rooms, the evidence looks scant. And yet the new, almost 350,000 room nights of annual capacity were filled at a rate of 77% in 2016, stronger than the pre-recession occupancy rate. Pricing also surged. The new hotels thrived by accommodating excess demand (previously turned away due to lack of capacity) and by stimulating new demand through the advertising and promotional efforts of the hotel staff and their brands' marketing and frequent-guest programs. In the case of the new Marriott Autograph Collection and Westin affiliates, the quality and scope of the facilities also played a role in reaching new markets. Combined, these dynamics encompass the phenomenon of supply-induced demand.Supply-Induced Demand, ClarifiedFor the most part, when demand is "induced" by new supply, occupancy that was historically accommodated elsewhere is captured by the expanded market in question. Before the rapid expansion of Downtown Portland's hotel inventory, leisure travelers who were a) unable to stay in Downtown Portland because of insufficient capacity but, b) sought a Portland-like experience, had numerous comparable options. They chose Freeport, Maine; or Portsmouth, New Hampshire; or Providence, Rhode Island; or Boston, Massachusetts. And where travelers with business to transact in Portland were concerned, those who now stay Downtown mostly stayed in South Portland, in one of the many hotels near the Maine Mall. Induced demand is largely demand that is re-routed to a location/product that is either more preferred, or was preferred in the first place but unavailable. Hotel demand in the broadest sense is born in economic activity, which creates both the need for travel (for commercial purposes) and the disposable income necessary to support the human want for travel (for leisure purposes). In this broad context, hotel demand grows proportionate to economic growth. Looking at the lodging industry on a national basis is instructive in this regard. The following table summarizes key rooms-revenue metrics for the U.S. lodging industry between 2013 and 2016. Comparing the national supply and demand change rates with those of Downtown Portland, far less volatility is in evidence, which is reasonable considering the national survey encompassed approximately 4.5 million hotel rooms, compared to roughly 750 rooms in Downtown Portland. A larger sample smooths out the bumps of volatility. The national statistics, because of their scale, also serve as the best measure of base economic change. Between 2013 and 2016, the national lodging market's demand grew at an average annual rate of 2.9%, basically in line with underlying national economic growth over that period.By comparison, Downtown Portland's demand grew at an average annual rate of 14.6% over the same period. Seen as a microscopically small share of the national lodging market, Downtown Portland's above-national-market rate of gain is balanced by below-national-market results in some other market or markets. Supply-induced demand is largely a measure of one or several new hotels' ability to consume some other hotel market's lunch.Predicting SuccessSupply-induced demand is common. For any market that experiences at least one sellout night per year, a new hotel--even a charmless rooms-only hotel--will technically induce demand when it accommodates a single stay that was previously turned away. Predicting how much demand can be induced is the challenge. Meeting space helps, but new-build full-service hotels in anything but the most urban of locations are increasingly rare. Otherwise, prospects are generally tied to questions of high-season market depth; the likely emergence of new demand generators in the market; or the exceptional features, facilities, or branding of the new hotel(s) in question. Analysts can also cite comparable market data, such as the experience in Downtown Portland, which, in hindsight, was ripe for expansion. Growing wealth in travel-hungry feeder markets throughout the Northeast, and these travelers' preference for coastal urban settings with a vibrant dining and nightlife scene, have proven to be major catalysts. The city is renewed and ascendant, and is being appreciated by new generations for its indelible charms and authenticity. Investors in Portland's new hotels have largely been rewarded for their vision and confidence in the market's potential, and doubters have been edified.
HVS · 7 February 2018
Downtown San DiegoDowntown San Diego is considered the heart of San Diego County, and given its excellent accessibility attributes, there are a variety of options for travel in and around the city. Three of the county's nine major freeways flow through the city, Downtown is located only two miles southeast of the airport, and there are several ridesharing and public transportation options that can easily connect tourists to the area's primary sources of lodging demand.San Diego benefits from a diverse mix of demand generated by local corporations, government entities, meeting and group business, and leisure-related activity. Compression resulting from large conventions held at the San Diego Convention Center produces a significant number of room nights in the market on an annual basis. Furthermore, the Little Italy and the Gaslamp Quarter neighborhoods are home to an array of restaurants, bars, nightclubs, and other tourist-oriented businesses that attract leisure guests and serve as amenities to convention attendees. Popular leisure attractions throughout the area continue to attract strong fly-in and drive-in demand. The local economy continues to expand, with tech start-ups, residential development, increases in military spending, and record high levels of visitation. One of the most up-and-coming areas of the city is its East Village neighborhood. The downtown San Diego area can be divided into eight neighborhoods: Columbia, Core, Cortez Hill, East Village, Gaslamp Quarter, Horton Plaza, Little Italy, and the Marina District. Each neighborhood contains a unique mix of cultural and distinct demand generators, which, to some extent, may preclude the hotels from competing for the same business. Downtown San Diego's primary economic districts are the Core (office space), Horton Plaza (shopping), Gaslamp Quarter (restaurants and entertainment), and Marina (waterfront and convention center). Many residential, retail, office, and other commercial developments are occurring in the market. Most of the high-rise buildings that have recently been completed or are currently under construction represent high-end condominiums and hotels. Most of these projects are on sites near the waterfront or in East Village, consistent with the overall civic redevelopment plans for San Diego. We have outlined a few of these projects below.* Pacific Gate: Vancouver, B.C.-based Bosa Development Corp is currently amid developing a new condominium building called Pacific Gate; the 41-story property will contain 215 residences, 16,000 square feet of retail space, and 460 parking stalls within three below-grade levels. Bosa has played a major role in creating many of San Diego's upscale, high-rise residences and landmarks; other completed Bosa developments in Downtown San Diego include Horizons, Park Place, Discovery, The Grande, and Electra.* Manchester Gateway: This project is being developed by Manchester Financial Group, a prominent San-Diego based development firm. The complex will occupy a three-million-square-foot site to be improved with a mixed-use development including the following components: a four-star hotel and four-and-a-half-star hotel, totaling 1,360 guestrooms; more than 1.2 million square feet of office space among three Class-A office buildings, one of which is being built solely for use by the U.S. Navy; a 391,000-square-foot retail development; and a public waterfront park. The site represents one of the largest, if not the largest, undeveloped urban waterfront sites located along the California coast, located in San Diego's Central Business District and within walking distance of the convention center. Given the large size and scope of this project, as well as its location on the San Diego waterfront, this development represents one of the most prominent and unique development opportunities on the West Coast.* Seaport Village: Seaport Village is a waterfront retail and dining complex that opened in 1980 on the site of the San Diego-Coronado ferry landing. Operated by Terramar Retail Centers, Seaport Village represents yet another tremendous waterfront redevelopment opportunity. Various developers have expressed interest in the site; the most recent proposal is a $1.2-billion project that includes three hotels; retail and restaurants; a 480-foot observation tower; a partially underground aquarium; 30 acres of new parkland, beach, and promenades; and upgraded facilities for commercial fishing fleets and pleasure craft on more than 70 acres.* Ballpark Village: A 37-story apartment tower and retail development is under construction on a site located directly east of the Petco Park baseball stadium. With an anticipated opening date slated for the third quarter of 2018, the $250-million project is anticipated to include 439 luxury apartments, 274 low-rise residential units, 45,000 square feet of retail and restaurant space, a 12,000-square-foot open-air plaza, an above-grade walkway, and over 900 parking spaces. The developer is also proposing a 1,600-room hotel; however, the hotel component is contingent upon a convention center expansion. The developer noted that the projects could represent more than $1.5 billion of additional construction activity in Downtown San Diego.* UCSD Extension Project: UC San Diego and Holland Partner Group recently broke ground on a $275-million, 34-story apartment building and a UC San Diego cultural and education hub, which is expected to feature 426 apartments, a 53,000-square-foot office and classroom building, a historic restaurant facility, and a 3,200-square-foot outdoor amphitheater. Officials anticipate the project to be completed in 2021.The following table illustrates new and proposed hotel supply in Downtown San Diego.A summary of a few of these projects has been provided below. The Lane Field South site is currently under construction with a 400-room InterContinental Hotel, set to open in early 2019. The project is part of an ongoing effort to redevelop the waterfront; the recently developed dual-brand Residence Inn/SpringHill Suites by Marriott hotel is located on the site adjacent to the north, while the proposed Manchester Gateway development is across Broadway to the south. A $270-million project, set to include an 831-room convention headquarters hotel and a 160-room boutique or "shared accommodations" lower-cost hotel, is proposed for development on the Fifth Avenue Landing site. Of important note, this is the same site that would house the contiguous expansion of the convention center, if approved. The project came about because of the City of San Diego's default on purchasing the premise for the Convention Center Expansion and the corresponding lease obligations of Fifth Avenue Landing (FAL). A 500-room expansion to the existing Hilton Bayfront has been proposed by its owner, Sunstone Hotel Investors. The added rooms would be located adjacent to the existing building and would include a 34,500-square-foot ballroom, 12,000 square feet of meeting rooms (92 square feet of meeting space per room in total), and a 7,500-square-foot fitness center and spa. The project is estimated to cost $200 million and is currently being planned and entitled with the expansion of the convention center.TourismTourism is an important factor for San Diego area hotels. San Diego's numerous beaches and beach towns, including Mission Beach, Pacific Beach, Ocean Beach, and La Jolla, attract large numbers of visitors annually. Aside from the sun-soaked beaches, three major attractions bring families to the greater San Diego market. SeaWorld is a marine animal theme park featuring animal shows and a variety of rides. In September 2016, SeaWorld officials announced the investment of $175 million on new attractions at SeaWorld Florida and SeaWorld San Diego, which are anticipated to open in 2018; a new documentary-style orca encounter is planned for SeaWorld San Diego. LEGOLAND is a theme park that focuses on Lego bricks, a popular children's toy. Balboa Park is a 1,200-acre, urban, horticultural and cultural resource park containing vast open spaces, natural vegetation zones and green belts, gardens, and walking paths. It contains 15,000 trees and 14 specialty gardens; nearly 100 arts, education, recreational, social, and sports organizations; 17 museums and cultural institutions; the San Diego Zoo; and Old Globe Theatre. There are also many other recreational facilities, including a golf course and several gift shops and restaurants, within the boundaries of the park. It entertains more than 10 million visitors per year. Although present year-round, the peak season for tourism in this area is from May to September. Leisure demand is typically strongest during key weekends and during the summer vacation season.Convention CenterThe San Diego Convention Center (SDCC) is the premier facility for conventions and trade shows in San Diego, hosting nationally and internationally renowned events such as San Diego Comic-Con International, the American College of Cardiology Scientific Session, the National Safety Council Expo, Cisco Live, and the Esri User Conference. Operated by the San Diego Convention Center Corporation, the venue attracts national and international associations and corporate events. The SDCC opened in 1989 and underwent an expansion that roughly doubled its size in 2001. The facility spans 2.6 million square feet, including 615,701 square feet of total exhibit space, 284,494 square feet of lobby and pre-function space, 204,114 square feet of meeting space, and 184,514 square feet of outdoor space. The remainder of the space comprises hallways, kitchens, executive offices, and other back-of-the-house facilities, as well as parking. During fiscal 2017, the SDCC achieved a 76% occupancy and generated a $1.1-billion regional economic impact, with nearly 844,382 estimated hotel room nights. Given the significant amount of meeting and group demand in the market, proposals to expand the center have been brought forth; however, the last two expansion attempts have not received enough support from the citizens of San Diego to secure the appropriate amount of funding. Continued efforts to expand the center are expected; If the expansion is passed in the November 2018 election, it could be completed by 2021, at the earliest.AirportSan Diego International Airport (SAN) is the busiest single-runway airport in the United States and occupies the smallest land footprint of any commercial airport in the country (661 acres). With no plans for future runway expansion, current airport forecasts suggest that arrivals and departures at the airport will increase to 260,000 annually between 2018 and 2022. August 2013 marked the completion of the $900-million "Green Build" expansion project of Terminal 2, which was completed $45 million under budget. The project, which was the largest in the airport's history, included ten new jet gates; additional shopping and dining options; expanded concessions; enhanced curbside check-in capacity; a new security checkpoint; a new, 25,000-square-foot check-in lobby with 32 airline counters and ten self-service kiosks; and a dual-level roadway to separate arriving and departing passengers. In April 2014, the airport became the first in the world to achieve LEED Platinum certification. The next part of the airport's Master Plan phase includes determining what improvements are necessary for the airport to accommodate demand through the year 2035. The primary project for consideration at this time is the demolition of Terminal 1 and construction of a new, 1,500,000-square-foot, 30-aircraft-gate facility that is anticipated to extend up to 150 feet above the ground. Airport officials have indicated that the project could open as early as 2020.It is important to note that several additional flight routes were added to San Diego International Airport in the recent past. In May 2017, new seasonal service between San Diego and Frankfurt, Germany, commenced. The new flight is operated by one of Germany's most popular leisure airlines, Condor (DE), and is one of only three nonstop connections between San Diego and Continental Europe. With up to three weekly flights on Mondays, Thursdays, and Saturdays, the route operates on a Boeing 767-300ER aircraft. City officials stated that Germany is one of San Diego's top partners for exports and foreign investments, and is rapidly becoming one of the economy's most important international markets. In June 2017, Edelweiss, an affiliate of Swiss International Airlines, launched a new nonstop route between Zurich and San Diego; the service runs seasonally through early November. San Diego marks Edelweiss' first nonstop destination in California; the flights will reportedly bring approximately 15,000 visitors to San Diego each year, creating an estimated economic impact of $50 million. In the spring of 2017, low-cost carrier Frontier Airlines announced nonstop service from Cleveland Hopkins International Airport to San Diego. Cleveland has not had a nonstop flight to San Diego since 2008. According to Cleveland Hopkins airport officials, San Diego was the largest unserved market from Cleveland, with just under 100 passengers a day traveling between Hopkins and San Diego International Airport; the new nonstop flight has significantly increased travel between the cities.Lodging MetricsHotel demand and occupancy has been steadily rising since 2010, resulting in peak occupancy levels over 79% in 2016, nearly 4.5 points above the prior peak of 74.7% in 2007. Average rates (ADR) began rebounding in 2011, following the recovery in occupied rooms, and have increased year-over-year since then. In 2014, market-wide ADR growth reached levels not experienced since the prior demand peak of 2007; this strong performance was driven by an increase in the number of attendees at key annual conventions, such as Comic-Con International, and healthy tourism levels. Year-to-date data for 2017 illustrate a slight increase in occupancy. Specifically, we note that the increases in demand have been diminished by increases in new supply. Alternatively, ADR has increased moderately, thus, resulting in a moderate RevPAR gain. Given the diversity and depth of the local economy combined with the anticipated moderate increases in new supply, the outlook for the San Diego lodging market remains favorable. AirbnbA growing trend in the lodging industry is the use of Airbnb, an online marketplace and hospitality service that enables people to list privately-owned real estate as alternative lodging options to traditional hotel rooms. Airbnb does not own any lodging facilities; it acts as a brokerage service and receives service fees from both guests and hosts on every booking. Airbnb supply in San Diego has been consistently increasing over the past two years. Due to the different kinds of Airbnb accommodations and fluctuations in nightly inventory, is difficult to conclude to the exact number of lodging facilities available on average each night, but Airbnb supply is becoming an increasingly large component of the San Diego lodging industry. Due to San Diego's large number of seasonal and absentee owners, the market is even more vulnerable to this trend. Airbnb provides additional supply during peak demand periods, which can be viewed as a positive impact, allowing more visitors to stay in the San Diego area when hotel supply is inadequate. In addition, a wide variety of units, including entire homes, are made available to the public, which increases the spectrum of lodging options. On the downside, when residential-unit owners put their units into the Airbnb rental program during peak compression periods, the pressure on existing hotels that allows them to charge peak rates is reduced. The profitability of hotels is positively affected by strong pricing during peak demand periods, and with more competitive supply available during times of compression, average rate and profit gains can be diluted. City officials are currently in the process of reaching an agreement on new rules that would limit the short-term rental of investor properties; negotiations are ongoing.ConclusionThis report discussed a wide variety of economic indicators for the pertinent market area. San Diego is experiencing a period economic strength and expansion. The federal government and related entities will remain cornerstones of the market, while the tourism, health sciences, wireless technology, and biomedical engineering sectors should continue to expand. Given the anticipated increases in government funding of the area's military installations, the ongoing expansion throughout Downtown, a strong convention calendar, and other positive corporate news, the outlook is optimistic. San Diego Tourism Authority, San Diego County Potential New Supply Developments; updated December 2017. San Diego Convention Center Corporation, Inc., Fiscal-Year 2017 Annual Report, FY 2017 Performance Summary. San Diego Tourism Authority, San Diego Visitor Summary (Annual), Hotel Performance - Source: STR. San Diego Tourism Authority, 2017 San Diego County Visitor Summary by Month through September 2017, Hotel Sector Actuals - Source: STR.
HVS · 5 February 2018
This study presents the current lending environment for hotels. It consists of four topics, (1) lending parameters, (2) availability of debt by project and chain-scale segment, (3) loan characteristics, and (4) an outlook on lending criteria.
HVS ·31 January 2018
HVS and spa-and-wellness consultancy Mackman ES have formed an alliance in the United States to fill the need for comprehensive, future-driven, spa-and-wellness valuation, feasibility, and strategic planning. "This alliance offers the hospitality industry advanced, one-of-a-kind client solutions in the rapidly evolving spa-and-wellness space, and HVS divisions worldwide can tap into this expertise as needed. This relationship also fosters an inclusive understanding of spa and wellness through industry insight with an emphasis on the significance of wellness in hospitality and its future value and growth," said HVS Americas' President, Rod Clough, MAI. The global wellness real estate market represents one of the fastest-growing wellness sectors, having risen 19% from $100 billion in 2013 to $118.6 billion in 2015. Wellness tourism continues to surge at a reported $563 billion, in addition to $99 billion in global spa business, according to the Global Wellness Institute; moreover, wellness real estate is expected to rise to from $134 billion in 2017 to $180 billion by 2022, contributing to a $3.72-trillion global wellness market. HVS has appointed Mia A. Mackman as HVS Director of Spa & Wellness Consulting to lead the spa-and-wellness aspects of its consulting engagements that require in-depth spa-and-wellness expertise. "We are excited to back the expanding hospitality/spa-and-wellness landscape together, with a view on the future of hospitality, investments, and growth. The evolution we have seen in recent years makes this a well-timed advantage for HVS clients seeking to succeed in this unique and transforming space" said Mia Mackman, founder and principal of Mackman ES. Thousands of hotel owners, developers, investors, lenders, management companies, and public agencies around the world rely on HVS to support confident, informed business decisions. This alliance is a part of HVS's commitment to excellence and unrivaled hospitality intelligence, prepared to meet the demands of a changing market.Mackman ES is a future-driven, spa-and-wellness consultancy with over 23 years of industry experience and a global network of resources and associates dedicated to providing objective, intelligent, intuitive, and leading-edge spa-and-wellness expertise. GWI: https://www.globalwellnessinstitute.org/press-room/statistics-and-facts/
HVS ·31 January 2018
2017 was full of triumphs and disappointments on the African continent. Some countries that had a positive outlook at the beginning, turned into the problem children of Africa and countries that seemed hopeless in the beginning, surprised us in the end. This article provides a brief summary of some of the most significant events of 2017 and commentary on how 2018 may evolve in the fast-developing world that is Africa. Trump's remarks have shown the need for Africans to independently take responsibility for their actions, resolve issues, help each other and above all, not rely on others who do not truly understand the continent. There were plenty of examples of just that last year:
HVS ·25 January 2018
DTLA's population has boomed in that time, as well, increasing nearly 250% between 1999 and 2016 to 65,100. Aside from the 32 million square feet of office space, the number of residential units has more than tripled (from 11,626 in 1999 to 38,120 in 2016); an additional 11,460 units are under construction, and 26,907 more units are planned. Approximately $27.1 billion has been invested in DTLA since 1999, and over 800 new restaurants, bars/lounges, nightclubs, and retail establishments have opened in the past eight years.Hotel InventoryDTLA currently has about 9,700 rooms of existing hotel inventory. Branded and independent full-service and boutique hotels dominate the market, such as the JW Marriott Los Angeles LA Live, The Standard Downtown LA, and the Millennium Biltmore. The most recent additions to the market include the Freehand Los Angeles, Hotel Indigo Los Angeles Downtown, and InterContinental Los Angeles Downtown, all of which opened in 2017.Newly OpenedFour new hotels have opened in DTLA within the last year. Maybe the most unique of these properties is the Tuck Hotel, which opened in the Fashion District. Unlike many of the properties proposed or operating in the downtown area, the Tuck Hotel is small, featuring only 14 guestrooms. The property, which opened in December 2016, offers three different room types ranging from 320 to 450 square feet, as well as a restaurant and bar. Owner Juan Pablo Torre wanted to create a different offering within the market, explaining that the name is an allusion to the "tuck shops" found in the United Kingdom, which are small retailers known for selling candy.The other three hotels that haven opened during this timeframe dwarf the Tuck Hotel in terms of room count. The Hotel Indigo, located in the L.A. LIVE/Convention Center submarket and part of the larger Metropolis development, initially had a soft opening in April 2017, before fully opening in June. Featuring a 1920's Prohibition-era design, the 18-story property includes a lobby-level restaurant, a top-floor cocktail lounge, a 9,100-square-foot outdoor pool terrace, a 24-hour fitness center, and 22,000 square feet of meeting space. The larger Metropolis development is expected to include an indoor/outdoor, 70,000-square-foot retail pavilion and three residential towers with resort-style amenities. The Freehand Los Angeles opened in June 2017 in the South Park submarket. Developed by the Sydell Group, this property offers 167 private rooms and 59 shared rooms. While the private rooms are more typical to your standard hotel room, featuring nubby textures and earthy, natural tones, the shared rooms closer resemble that of a hostel. However, these are not your typical hostel rooms; the shared rooms feature bunk beds made of solid wood, the same mattresses used in Sydell Group's luxury NoMad Hotels, and private in-suite bathrooms. Furthermore, the hotel's rooftop bar, known as "Broken Shaker," opened in July, offering an eclectic menu of handcrafted cocktails and small bites. The largest of Downtown's new openings is the 889-room InterContinental Los Angeles Downtown, located in the Financial District. Part of the $1.35-billion, 73-story Wilshire Grand tower, which is now the tallest building west of the Mississippi, the property occupies the 31st to 68th floors and includes 95,000 square feet of event space, as well as six food and beverage outlets; it is the largest InterContinental in the Americas. The property's rooftop bar, Spire 73, is the highest open-air bar in the Western Hemisphere.Meanwhile, the NoMad Hotel in the Financial District has been completed as well. The project involves the conversion of Giannini Place, the former Bank of Italy Building at 7th and Olive Streets, to a luxury property that contains 241 guestrooms, ground-floor retail and restaurant space, meeting rooms, a rooftop pool, and an event deck. Sydell Group, which also recently opened the Freehand Los Angeles, opened this property on January 21, 2018.Proposed Hotel DevelopmentsRecent hotel development has been astounding, with roughly 1,500 rooms currently under construction, and nearly another 5,000 in the development pipeline. DTLA's incoming supply represents a potential 80% increase to the existing inventory. Since the start of 2014, five properties containing almost 1,800 rooms have opened. The majority of hotel development is taking place within the L.A. LIVE/Convention Center area and the adjacent South Park district, which has been spurred by the expectation of an expansion to the Los Angeles Convention Center, as well as the City's 2013 goal of having 8,000 hotel rooms within three-quarters of a mile of the convention center by 2020. Some of the more notable proposed developments include the Park Hyatt Oceanwide Plaza, the NoMad Hotel, the 1300 Figueroa Development, the Fig + Pico Triple Hotel, and the W Downtown.The 1300 Figueroa Development is currently in the early stages of development; plans call for a 53-story skyscraper by developer TriCal Construction, which would be located across Figueroa Street from the convention center's South Hall. Along with a ground-floor restaurant, a rooftop bar, and meeting and banquet space, the property would contain 1,024 hotel rooms operated by two different hotels, similar to the nearby JW Marriott and Ritz-Carlton. According to TriCal, it may take two to three years to receive City approval for the project, and an additional two years to develop the property.Nearby, another megaproject is taking place, commonly referred to as Oceanwide Plaza. Along with an open-air, 166,000-square-foot retail area and 504 condominiums, a 184-key Park Hyatt is expected to be developed; the property would become the sixth location in the U.S. for the luxury brand. Located at Flower and 11th Streets, this project is anticipated to be completed in 2019.Of all these projects, the Fig + Pico project will be the most significant in size. Still in the early development process, developer Lightstone Group plans to construct two buildings of 42 and 25 stories. The larger tower, to be located at the corner of Figueroa and Pico Boulevard, would contain 820 guestrooms split between two operators, as well as 11,000 square feet of commercial uses, rooftop pool decks, meeting space, and parking; the smaller tower, which would be located at the corner of Pico Boulevard and Flower Street, would contain 342 guestrooms, 2,145 square feet of ground-floor commercial space, and similar ancillary features. No operators or hotel brands have been announced for this project, and a timeline has not been confirmed; however, completion is reportedly aimed for 2022. Additionally, it was recently reported that the project has a $67.4-million feasibility gap in financing. The developers and the City are working on a deal that would provide $103 million in public money for the project, although this is considered speculative at this time. Similarly, the L.A. City Center Project, which would contain a 300-room W Hotel, was recently approved after the developers submitted new plans for the $700-million development. This project has been rumored for years, with plans changing several times. The most recently approved plans feature two buildings; the 29-story structure would contain the hotel, while an adjacent 49-story building would house 435 condominiums. Additionally, the project would contain approximately 5,000 square feet of retail at the ground level. A final timeline for this project has not been approved. These projects, as well as the remaining projects under construction and in the pipeline for Downtown Los Angeles, are listed and mapped out below. It is important to note that some of the projects, particularly those that are speculative, may never come to fruition, as many of them are still seeking financing or final approval from the City, which is often a lengthy process.Convention CenterThe Los Angeles Convention Center (LACC) is a significant demand generator for DTLA and is one of the key contributors to the economic and cultural vitality of Los Angeles. In recent years, the convention center has hosted several high-profile events, including events related to the Special Olympics in 2015. In addition, in April 2014, it was announced that the LACC was able to attract the U.S. Green Building Council conference away from the San Diego Convention Center, a major competitor of the LACC. This new conference, which was held in October 2016, attracted over 18,000 attendees.Historically, the LACC has lost larger citywide conventions to other regional convention centers with more guestrooms within a walkable distance. This trend is set to change with the number of new DTLA hotel rooms coming online within a one- to two-mile radius, including the recently opened almost 900-room InterContinental Los Angeles Downtown. In June 2015, the City Council approved the recommendation to move forward into contract negotiations with HMC Architects and Populous for the expansion of the LACC. However, this project is currently on hold, as AEG, which owns the Staples Center and L.A. LIVE and operates the LACC, may potentially take on the expansion project. Under this plan, AEG would likely develop a hotel, office space, a retail component, and more. According to convention center officials, the expansion plan would make the LACC more attractive for larger conventions, such as Comic-Con International, which has historically been held in San Diego. By size, the current facilities place the LACC near the bottom of major convention centers in the U.S.; however, with the proposed expansion, it would rise to the mid-range, just above Anaheim Convention Center's current offering of space.Hotel Market PerformanceHistorically, the DTLA market has been driven by corporate and meeting/group demand, but leisure demand is expanding, with L.A. LIVE as the main catalyst, coupled with the openings of restaurants and nightlife venues. Local hoteliers report that the area has become a hub for tourists, with travelers opting to stay Downtown while exploring other parts of the greater Los Angeles market. The success of L.A. LIVE and the JW Marriott and Ritz-Carlton hotels has benefitted market-wide average rate (ADR) in DTLA. These hotels set a new bar given their luxury product offerings and brand affiliations at higher price points, helping to raise the market-wide average rate and spur renovation projects at other hotels. DTLA has registered seven consecutive years of RevPAR increases. According to HVS surveys with market participants, our research, and interviews with DTLA hotel managers, in 2016, occupancy registered in the high 70s, with an ADR level averaging $220, and a RevPAR of approximately $175, an increase from the year prior and an all-time high. A minimal occupancy decline was registered in the year-to-date period through October 2017 because of the entrance of new hotel supply, particularly the InterContinental Los Angeles Downtown, although ADR reportedly increased 2% to 3% year-to-date. While illustrating an improvement for this market, these average rates still have room for growth before catching up with the average rates commanded by greater Los Angeles' top-tier markets, such as Santa Monica, West Hollywood, and Beverly Hills.Lodging TransactionsInvestor appetite in DTLA has strengthened in recent years. Since 2014, over $500 million in assets have traded hands, representing nearly 23% of DTLA's total supply.The DoubleTree by Hilton Los Angeles Downtown was purchased by the Chinese firm Han's Group USA for $115 million in June 2017, more than double the hotel's 2011 sales price. The ability to purchase existing, high-quality hotels with a proven track record in the burgeoning DTLA market is still an attractive option for investors, even with new supply on the horizon.Slightly over a year after the Ace Hotel opened, it sold to public REIT Chesapeake Lodging Trust for $102 million, or $558,791 per key. The Ace represents the highest price-per-key transaction for investment purposes (non-redevelopment) to ever to take place in DTLA, illustrating that investors have confidence in the market's continued growth; the previous record was held by the Standard Hotel Downtown, which sold for $444,444 per key in 2008. Greenfield Partners paid $11 million for the historic United Artist building in 2011, which was subsequently converted to the Ace Hotel. The cost of the renovation was not disclosed. Chesapeake also owns the Hilton Checkers in DTLA.After being converted from a Holiday Inn to the Luxe City Center Hotel in 2010, the hotel sold to Shenzhen Hazens Real Estate Group in July 2014 for redevelopment purposes. Although the sales price penciled out to $585,112 per room, the price included multiple adjacent parking lot parcels and, thus, was not a true per-key price figure. In September 2017, the City approved plans for a 300-room W Hotel Los Angeles on the site as part of the greater $700-million L.A. City Center project, which will include 435 condominiums, retail space, and subterranean parking.ConclusionThe influx of people and development in Downtown Los Angeles has led to a notable increase in the supply pipeline, and the scope of the major mixed-use projects is expected to advance this phase of DTLA's renaissance. With the saturation of full-service and boutique hotels in DTLA, there may be opportunities to develop other hotel products, particularly those affiliated with nationally recognized hotel chains; no nationally recognized, branded, limited-service hotels currently exist in DTLA, atypical of downtown markets in other major U.S. cities. With the availability of developable land decreasing rapidly, adaptive reuse projects remain a viable option for the development of limited-service, select-service, and/or extended-stay hotels in the DTLA market. https://www.downtownla.com/images/BID.AR17.ALL.Web.v4.pdf
HVS ·25 January 2018
It's hard to ignore the changes afoot in the U.S. political and economic landscape. While the impact of deregulation, anti-immigration activity, and the Tax Cut and Job Creation Act of 2017 (TCJA) have yet to be felt or measured, the lodging industry is operating on a platform of shifting sands. Slowing RevPAR and NOI growth, coupled with rising interest rates, further cloud the outlook. Only time will tell how our industry will fare, but the pros and cons can be weighed in the interim to assess the potential impact on hotel cap rates and values.Hotel sales transaction activity provides a gauge for assessing asset value and cap-rate trends. While total 2017 U.S. hotel sales volume (based on preliminary data reported by Real Capital Analytics) reached $27 billion, a decline of 25.0% from the $36 billion level reached in 2016, individual sales transactions, which accounted for 82.0% or $22.2 billion of the total volume, declined by only 2.3%. Approximately $8 billion of the decline in transaction sales volume was due to significant declines in portfolio and entity transactions, which in turn were dominated by Chinese investment in 2016. Portfolio and entity volume declined by 25.0% and 87.0%, respectively. Cross-border transaction activity, as tracked by RCA, declined by 69.0%, from $11.6 billion to $3.6 billion; almost the entire $8-billion decline in offshore activity can be attributed to a pullback by Chinese investors.The average price per key (PPK) derived from the total sales volume increased by 3% in 2017, from $134,000 to $138,000. Major hotel sales volume, defined as those that sold for a price of $10 million and over, declined by 29%, and the average PPK held steady at $222,000 per room. Sales volume of assets priced at $10 million and under remained stable, as did the average PPK. The lower average PPK should not be viewed as a decline in hotel values, as this metric is affected by the composition of assets sold. Fewer large, high-priced hotels in coastal metro areas sold in 2016 and 2017, thus affecting the PPK; secondary markets with more potential for upside were favored by investsors. In summary, the hotel transaction market was active and steady in 2017, despite the concerns and pullout of some investors.2017 Hotel Sales Transactions $2.5+ and $10.0 + MillionAs evidenced by the following data, individual hotel sales volume reached a consistent level of $22-23 billion in 2014, 2016, and 2017. The heady $29.6 billion individual sales volume in 2015 was driven by a number of large, high-priced individual transactions in major metro areas. Overall, the hotel transaction market has remained active and balanced, reflecting the continued appeal of hotel assets for yield-driven investors.2017 Hotel Sales Volume: Individual Asset, Portfolio, and EntityWhile individual asset transaction volume has remained steady, capitalization rates continued their modest year-over-year rise because of lower future RevPAR and NOI (net operating income) growth exceptions. According to HVS data derived from hotels appraised at the time of sale, overall capitalization rates based on historical NOI rose over the course of 2017, averaging 7.5% for full-service hotels based on historical NOI. Note that these are averages and rates of return can vary significantly for individual assets.Full-Service Capitalization and Discount Rates Derived from Sales TransactionsThis same data are reflected in the following graph. Cap rates continued their modest climb through 2017, while discount rates flattened given the slowing of NOI growth.Full-Service Capitalization and Discount Rates Derived from Sales TransactionsCap-rate data based on historical NOI, captured by HVS for full-service, select-service/extended-stay, and limited-service hotels over the past five years, are presented below. Select-service and extended-stay hotels reflect the branded, upscale STR chain scale, while limited-service hotels reflect the midscale and economy chain scales. Cap rates for full-service hotels rose 30 basis points (bps), while select-service/extended-stay rates increased 10 bps. Limited-service hotel cap rates remained stable.Comparative Average Cap Rates Derived from Sales Based on Historical NOIWe caution that the derived capitalization rate data are dependent upon the individual sales transactions that comprise the data. The wide range in cap rates that comprise the HVS data averages is evidenced in the chart below. Individual sales transactions can affect the cap-rate range and average.Capitalization Rates Derived from Sales Transactions - Historical NOIThe following chart, which sets forth capitalization rates and internal rate of returns (IRRs) by product segment for 2016, reflects the step-up in rates of return from the full-service to select-service/extended-stay and limited-service sectors. "Going-in" capitalization rates, derived from projected first-year NOI divided by the purchase price, range from 20 to 90 bps above cap rates derived based on historical NOI, reflecting the expectation of future increases in NOI by investors.Average Rates of Return Derived from 2017 Sales TransactionsAs we assess the outlook for hotel values and cap rates, key factors that will affect the hotel investment landscape over the near and mid-term include the following:1) The Tax Cut and Jobs Act (TCJA) of 2017, as commercial property owners are some of the biggest beneficiaries of the new lawThe 1031 Exchange provision remains in place.Commercial property owners will still be able to fully deduct mortgage interest expense, while also benefitting from the reduced 21.0% corporate tax rate.Pass-through entities, like LLCs and partnerships, commonly used to own commercial real estate, will benefit from lower tax rates; they will be taxed at their personal tax rate, less 20.0% for expenses.The TCJA allows full and immediate expensing of short-lived capital investments for five years.The net effect of this favorable tax treatment is likely renewed interest in commercial real estate ownership and development. Strong demand for real estate assets is likely to positively affect hotel values.2) The TCJA's significant reduction in corporate taxes, increasing cash flow for corporationsWith increased cash flow, companies may loosen their purse strings on corporate and group meeting travel.Companies are already sharing their higher profits with employees to some degree, which will enhance consumer discretionary income for travel.Repatriated profits may be reinvested for company growth.3) The current administration's pullback on federal regulations has increased optimism on the part of businesses.Greater capital investment in research, plants, and equipment may be stimulated, which should in turn generate stronger commerical, and even meeting and group, demand for hotels.Additional job growth is likely to result from increased corporate investments in growth.4) The TCJA tax law will put more money in the pockets of many consumers over the near term. However, the limitation on SALT (state and local taxes) deductions may lead to lower earnings for high-income consumers in states with high state income taxes and home values. The net impact on consumer behavior in the travel arena should be positive.5) Stronger economic growth and more stringent immigration policies will create an increasing strain on a labor force that is already at a low 4.1% unemployment rate. Employers already, and will have to continue to, compete for labor by offering higher wages. As labor is the highest expense of a hotel, higher wages will continue to create a drag on hotel earnings.6) The actions and policies of the current administration have resulted in a pullback of international travel to the U.S., affecting coastal hotel markets, a trend that is likely to continue over the next few years. However, a weaker dollar should offset some of this decline and encourage U.S. residents to travel domestically.7) Hotels are under increasing pressure to upgrade their physical plants by the brands and competitive forces; costly upgrades can extend the economic life of an asset, but may not be economically justified in some markets.8) OTAs and Airbnb continue to disrupt the lodging industry, increasing the cost of acquiring guests and drawing guests away during peak demand periods, in turn creating a drag on ADR and NOI growth. While hotel companies and the AH & LA are forging a strong counterattack, the battle will continue.9) The benefits of the TCJA for commercial real estate may stimulate more development, which could increase the risk of overbuilding. However, lenders remain disciplined in their financing of new construction, and rising construction costs are creating headwinds for many projects, thus slowing the pipeline.10) The TCJA is likely to trigger higher inflation due to the economic stimulus it creates; inflation, which averaged 2.1% in 2017, is currently projected to rise 40 to 50 bps in 2018. Moderately higher inflation can be good for hotels if it translates to higher room rates.11) The larger deficit created by the TCJA, combined with a reduction in Treasury bill (T-bill) purchases by the Fed and other countries, is anticipated to lead to higher interest rates, which may affect hotel values. The federal funds rate now stands at 1.5%; the Fed plans to raise the federal funds rate three more times in 2018 if the economy continues to show strength. If growth surges, the increase could be higher. So far, hotel mortgage interest rates have sustained their historic low levels because of reduced spreads and a flattening of the yield curve. Commercial mortgage interest rates are expected to be somewhat volatile over the course of the year, but with a further tightening of spreads, should rise by only 50 to 75 bps.The following chart sets forth the derived capitalization rates for full-service hotels (green line), compared to the ten-year T-bill yield and hotel mortage interest rates, as reported by the American Council of Life Insurers. Cap rates, which reflect a weighted cost of capital, currently well exceed the cost of debt, allowing for an equity cushion over debt service. Hotel mortgage interest rates, as reported by the ACLI, remained stable in 2017. The spread between the hotel mortgage interest rates and the ten year T-bill tightened in 2017, helping to maintain low interest rates for hotel investors. Looking forward, the selloff of bonds has pushed up the yield on T-bills. In the wake of the tax cut package, the U.S. government will have to issue more debt in an environment where the demand for debt by the central bank, and possibly by offshore investors, is set to decline, causing an increase in interest rates.Hotel Capitalization Rate and Mortgage Interest Rate TrendsWhen evaluating the outlook for hotel cap rates, data derived from publicly traded REITs can provide insight into future trends. The stock market surged in 2017, with the Dow Index ending up 24.0%. In contrast to the Dow, the mean return of 19 publicly traded hotel REITs was 3.9% in 2017, following a strong 19.3% in 2016. Implied REIT cap rates, derived from investment banker bulletins and calculated as EBITDA divided by enterprise value (equity value plus debt) as of the calendar year's end, are set forth in the following table. Implied REIT capitalization rates trended up through year-end (YE) 2015, but then declined 80 bps as of YE 2016 and another 20 bps as of YE 2017. While hotel REIT stocks did not benefit greatly from from the soaring stock market, REIT investors appear to be more optimistic in their outlook for hotel performance, providing support for the premise that the countervailing forces at work will generate renewed optimism by hotel investors. With GDP increasing by over 3% in the 2nd and 3rd quarters of 2017, and the impact of the TCJA ahead, the positive outlook appears warranted.Capitalization Rates Derived from Select Lodging REIT DataOutlook for Hotel Values and Cap RatesThe key factors summarized in this article can be narrowed down to two major elements affecting hotel values and cap rates over the near term: changes in NOI (as driven by factors influencing operating revenue and expense) and increases in the cost of debt financing. A sensitivity analysis has been performed for a sample hotel, including varying NOI growth levels and hotel mortgage interest rates to assess the potential impact of these factors. A mortgage-equity, ten-year DCF was performed assuming a 70.0% loan-to-value ratio, and an equity return requirement of 18.0%; these metrics were held constant, while interest rates and NOI growth rates were varied incrementally. NOI changes were calculated as compound annual growth rates (CAGR) from the historical trailing-twelve-month (TTM) NOI to the fourth forecast year, with 3.0% increases thereafter. The resultant value per room of this sample hotel for each permutation is set forth in the chart to follow.A baseline value of $235,000 per room has been selected under a scenario assuming a 2.5% CAGR over four years and a 5.0% interest rate. If this same hotel's NOI increases at a CAGR of 5.0% over four years, at the same 5.0% interest rate, the value would increase by 11.0% to $262,000 per room. If the interest rate rises to 6.0%, the value at the same 5.0% CAGR would increase by only 6.0%, but the higher NOI growth would more than offset the interest-rate increase. If NOI decreases by a 2.5% CAGR, the hotel's value would decline by 21.0% to $185,000, assuming an interest rate of 6.0%.NOI Growth and Interest Rate Impact - Hotel Value Per RoomThe change in value from the baseline, illustrated below, indicates that a CAGR of 2.5% per year in NOI is not enough to offset a 100-basis-point increase in interest rates; the interest-rate increase is more than offset at a 5.0% CAGR. Thus, we can conclude that the impact of rising interest rates will be modest if the economic forecasts of higher GDP growth hold true. Experts are prognosticating a RevPAR increase of roughly 50 bps over the rate of inflation in 2018, driven primarily by average rate; if operating costs hold, net income levels should continue to rise. The extent to which they do will be determined on the local market and property level. Based on this analysis, a 50- to 100-basis-point increase in interest rates will have a minor impact on values if NOI increases by 2.5%, while greater growth will more than offset the interest-rate rise.NOI Growth and Interest Rate Impact on Baseline ValueThe cap rates associated with each valuation scenario are set forth below. Higher projected NOI growth lowers the cap rates, assuming a constant interest rate, as an investor is willing to price an investment at a lower rate of return with the anticipation of stronger NOI growth going forward. Assuming a constant rate of growth, a 100-basis-point increase in the base interest rate, from 5.0% to 6.0%, increases the cap rate by 30 to 50 bps. The impact of varying NOI growth rates is more profound. At a constant 5.0% interest rate, a 2.5% CAGR decline in NOI results in a 9.5% cap rate on TTM NOI, while a +7.5% CAGR in NOI results in a 6.5% cap rate.NOI Growth and Interest Rate Impact - Cap Rate (Historical TTM NOI)The free-and-clear discount rate resulting from each valuation scenario is presented below. The discount rate varies by 110 to 130 bps from the low to high range of interest rates, but varies by only 30 bps when interest rates are held constant and growth rates are varied. A comparison of the cap rates and discount rates reveal that the differential between these two metrics increases with greater growth, which is no surprise since a discount rate equates to a cap rate plus the rate of change.NOI Growth and Interest Rate Impact - Discount Rate (10 Year DCF)ConclusionThe current U.S. political landscape and the policy and regulatory changes will undoubtedly alter the economic landscape in the near future. Ultimately, these shifting sands will affect the hotel investment environment, as well. Taking the countervailing factors into consideration, higher economic growth will likely become apparent later in 2018, which will in turn result in stronger hotel performance that will facilitate new supply absorption and offset the impact of higher interest rates. Debt and equity capital for hotel investments is expected to remain widely available. Cap rates are likely to remain stable or even moderate despite higher interest rates due to the prospect of higher growth; hotel values should sustain their current levels or rise moderately, barring any unforeseen event. If the TCJA further stimulates the economy, hotel values should resume their rise, which had slowed over the past two years. As always, we caution that the value of a given hotel can only be measured by an evaluation of the specific property and local market factors affecting an asset.This dollar volume will rise marginally as additional sales data are captured and confirmed by RCA.RCA defines portfolio transactions as those that comprise two or more properties. In an entity transaction, only the allocated real estate asset values are recorded in the RCA sales data; the value of company franchise and management operations are excluded.Cap rate and discount rates derived from actual transactions appraised by HVS at the time of sale.The factors summarized represent only a partial list of the numerous provisions of the Tax Cut and Jobs Act that will affect commercial real estate; please contact a tax professional for a complete assessment of the tax law provisions.Earnings before interest, taxes, depreciation, and amortization (EBITDA) and after a 4% reserve for replacementTerminal cap rates were varied by 50 bps to synchronize with the cap rate derived from the calculations.If a different baseline scenario is selected, the impact on value of varying NOI growth rates and interest rates can be calculated as the % change between the respective values per room in the table.
CHICOS Returns to Bermuda, November 8-9, 2018: Caribbean Hotel Investment Conference Tackles Topics of Recovery, Investments, Diversity, and Yes, Airlift
HVS ·19 January 2018
Parris Jordan, Chairman of the Caribbean Hotel Investment Conference & Operations Summit (CHICOS) announced that the 2018 edition of CHICOS is now set for November 8-9, 2018 and will be hosted at the Fairmont Southampton Resort in Bermuda."The Bermuda Tourism Authority (BTA) has been an exceptional partner for CHICOS and we are honored to return to the island nation in 2018," says Jordan. "The leadership of the BTA and the support of the entire hospitality community in Bermuda enables us to move forward with new and innovative perspectives and ideas."Our heart beats with a Caribbean rhythm," says Kevin Dallas, Chief Executive Officer of the Bermuda Tourism Authority. "We are honored to welcome CHICOS back and are eager to showcase Bermuda and further discussions with the hundreds of investors, bankers, lenders and other interested hospitality developers. CHICOS is a critical venue for all of us to promote continued growth."As Jordan and the CHICOS team assemble the program contents, we can be sure of specific topics that are important to the region and are to be included in the agenda:Recovery updates from the island countries impacted by last year's storms;Disruptors and new paradigms for the Caribbean, off the heels of the successful sessions at last year's CHICOS event featuring executives from AirBNB and Expedia;Continued interest by equity investors seeking opportunities in the region;Topics concerning "diversity" in the region;The significance and on-going efforts for airlift intra-and inter-Caribbean airlift to support positive tourism and development growth.For conference news, updates and comments, follow CHICOS on Twitter @CHICOS_HVS and on LinkedIn at the CHICOS page. Please use #CHICOS2018. For conference registration and hotel information please visit www.hvschicos.com. To confirm accommodations at the CHICOS host hotel, the Fairmont Southampton, click here. About CHICOSStaged by HVS, the Caribbean Hotel Investment Conference & Operations Summit, CHICOS is the premier industry conference for the region. CHICOS 2017 welcomed governmental representatives, opinion leaders, developers, bankers and other lenders, tourism officials, investment funds, hotel brand executives, individuals/companies seeking investors for their tourism projects, franchise and operations companies, public and private institutions, consultants, advisors, architects and designers - all to discuss the region's markets and possibilities.In light of the hurricanes which affected the Caribbean region in late Summer/early Fall 2017, CHICOS has made a donation to the Rotary Foundation of the Caribbean in support of relief and recovery efforts for islands impacted by the recent storms. The Rotary Foundation, which has a history of operating in the region with nations impacted by hurricanes, is working to provide impacted countries with necessities such as water, canned food, and clothing. The organization has outstanding ratings, being named by CNBC as one of the "Top 10 Charities in the World." Every dollar of the proceeds received will be donated directly to beneficiaries in the Caribbean. For more information on how to contribute to the Rotary Foundation's Caribbean relief efforts, click here.
HVS ·11 January 2018
HVS is deeply saddened to announce the sudden passing of Michael Brophy, Managing Director, Senior Partner of HVS Atlanta. A 14-year veteran of the firm, Mike established the HVS presence in Atlanta, a city he and his family came to love.According to Rod Clough, MAI and President of HVS Americas, "Mike was a true leader and friend. From the start of his HVS career, he was one of the most dedicated team members, working long hours when needed and with the best attitude. When an opening presented itself in Atlanta, he stepped up and took on a new leadership position with the firm, transcending into that role well beyond expectations. I selected Mike as part of my founding partnership group for a reason: his friendship, loyalty, and leadership meant the world to me. I knew he would do anything for me, as I would for him, and that I could not live without him. Now I must figure out how to do that, and it isn't proving to be easy. We all miss Mike so much.Mike fostered an extraordinary team that will continue to serve the Atlanta and Southeast markets with the same commitment to excellence under the leadership of Janet Snyder.He left behind his beloved wife, Patti, and two sons, Sean and Garrett.
HVS ·11 January 2018
Restaurant industry studies and reports have brought much attention to the shift in consumer choices and the flattening of year-over-year same store sales growth that the Casual Dining segment has been experiencing in recent years. However, there are still many exciting growth opportunities and ways that Casual Dining can flourish.Overall the restaurant industry is on the rise, with sales for 2017 expected to peak at around $800 billion according to the National Restaurant Association's 2017 Outlook report. While Full Service (which includes Casual Dining) is seeing a decline in sales growth the Full-Service category still comprises the largest industry service segment making up nearly one third of the restaurant industry's total sales. In fact, sales are greater in Full Service than both Quick Service Restaurants (QSR) and Fast Casual segments combined.With projected sales of more than $260 billion for 2017, the Full-Service sector may have flattened in system growth, but it is not going away. Companies are being challenged to seek new ways to remain relevant, and to take advantage of the narrowing gap between the value, price, and service propositions for Casual Dining vs. Fast Casual.Key areas that we are seeing Casual Dining Operators focusing on to narrow the gap include:Intensified focus on food quality and freshness, farm-to-table offering, made from scratch, health-conscious menu choices and environmentally friendly offerings.Adjusting and broadening menus to meet varying customer dining occasions including better understanding consumer needs for each day-part and offering more diversity, variety, and smaller portion sizes.Adapting service models to meet the changing and diverse needs of consumers, such as adding differentiating service strategies based on the different day-parts. For example, breakfast and lunch offerings, lunchtime speed of service, carryout, and delivery.Leveraging the diverse and profitable separation from Fast Casual by providing superior drink offerings, both in the alcoholic and non-alcoholic space.Leveraging FOH, BOH and customer facing technologies that enhance speed of service, quality and customer satisfaction.The use of customer loyalty programs, increased spend on social media, mobile platform consumer engagement, online marketing and shifting away from traditional advertising.Casual Dining leaders are also implementing new strategies to meet the changing needs of their consumers. Here are just a few examples of Companies that are finding success through these new opportunities:Cheesecake Factory is partnering with DoorDash as its exclusive delivery partner.Dallas-based TGI Fridays introduced online take-out orders a year ago and has seen sales grow by 30%.Bloomin Brands has invested in take-out and delivery for diners who don't want to leave home.Applebee's offers appetizer and entree dinner menus for two at a fixed price of $20 / $25 providing customers a variety of new flavor choices focused on customer value and ordering convenience.Chili's Bar and Grill has continued to evolve its tabletop technology by offering many new features to improve service times and the overall guest experience including: tabletop ordering, self-cash out, drink re-ordering, check-splitting, loyalty points tracking and redemption and carryout ordering.These are just a few examples of tremendous success stories where Casual Dining is finding new traction and driving incremental sales and traffic. The recipe for Casual Dining to remain the most viable and competitive customer choice for many years is to couple creative new strategies, together with an unwavering commitment to great service, great people and great food (all of which never go out of style).
HVS · 3 January 2018
Major Businesses & DevelopmentsMicrosoft Corporation is an American multinational technology company that develops, manufactures, licenses, supports, and sells computer software, consumer electronics, personal computers, and services. In 1986, Microsoft moved into its headquarters office in the Redmond suburb of Seattle and began its journey to become one of the Fortune 100 companies; its expansions have drawn tens of thousands of talents to the area and have cultivated a tech-friendly environment in Seattle, now considered a technology hub and home to numerous startup companies. Downtown Seattle is home to the rapidly growing Amazon.com, which ranked twelfth on the Fortune 500 list in 2017. The company's growth has allowed it to expand its headquarters in the heart of Downtown Seattle. Amazon reportedly employs over 40,000 people in Washington and 300,000 globally. According to Seattle Times, Amazon occupies nearly 8.1 million square feet office space in Seattle, and this number is anticipated to grow to 12 million by 2022. The latest additions to Amazon's headquarters include the 521-foot-tall Day 1 Tower, which opened in 2016, and the three sphere-shaped biodomes that are under construction and will open in 2018. Aside from occupying a vast amount of Downtown office space, Amazon also fills up many hotel rooms in the CBD, Denny Triangle, and Lake Union neighborhoods. Several new hotel projects, either recently opened or under construction, are next to or near an Amazon building, including the Moxy Hotel and the Residence Inn by Marriott Downtown/Convention Center, as well as the Hilton Garden Inn in Denny Triangle. Furthermore, the company is in search for a second headquarters and has reportedly received over 200 proposals from across the United States. Another web-based tech company that will join Amazon in Downtown Seattle is Expedia, which will relocate its headquarters and 3,500 employees from Bellevue to Seattle by 2019. Additionally, several Silicon Valley high-tech companies, such as Google and Facebook, have a strong presence in Seattle. Google, with its major presence in Kirkland, announced plans to relocate its cloud division, currently located in Fremont, to the South Lake Union neighborhood of Downtown Seattle by 2019. The new campus, which broke ground in May 2017, will occupy 607,000 square feet of office space. Seattle's central waterfront, which stretches nearly two miles along the west side of the city, is amid a multibillion-dollar revamping project. One of the major components is the replacement of the Alaskan Way Viaduct, which is scheduled for completion in 2019. In addition, the existing seawall, which does not meet current safety standards, will be replaced. These two projects will create a significantly different landscape, with a pedestrian promenade connecting the waterfront to Downtown Seattle. Other projects will include an expansion of the Pike Place Market and a new Overlook Walk. The Seattle waterfront project is anticipated to create opportunities for the city to capture more tourists and businesses.In the meantime, the Washington State Convention & Trade Center (WSCTC) is set to embark on a $1.6-billion expansion and renovation project in response to the growing demand. The WSCTC features approximately 205,700 square feet of exhibition space, 61 meeting rooms (totaling roughly 105,000 square feet), and a 45,000-square-foot ballroom. The expansion is expected to more than double the size of the existing WSCC with an additional 440,000 square feet of meeting space. The expansion and renovation are slated to begin in 2018, with a completion date in 2020. With the addition, the convention center is anticipated to generate an additional $235 million in revenue annually from in-state and out-of-state visitors. Moreover, a 1,260-room Hyatt Regency is under construction adjacent to the planned expansion of the convention center. Upon completion, the Hyatt Regency will be the largest hotel in the Pacific Northwest, providing roughly 100,000 square feet of meeting space. The expansion of Amazon, the growing numbers of startups, and the increasing attractiveness of Downtown have resulted in a historically high number of developments in Downtown Seattle. Aside from the CBD, other neighborhoods, such as the Pioneer Square and SoDo, are experiencing a period of revitalization. Timber REIT Weyerhaeuser recently moved its headquarters to the Pioneer Square neighborhood from Federal Way. SoDo, an industrial district south of the CBD, houses the largest concentration of industrial facilities in Seattle and is home to two sport stadiums, the headquarters for Starbucks, and Harbor Island, the largest container port facility in the Pacific Northwest. While industrial uses remain to be the focus of the neighborhood, the construction of new office buildings and a 23-story Embassy Suites by Hilton hotel are underway. According to a report published by Downtown Seattle Association mid-year 2017, 74 major projects were under construction in Downtown Seattle, with 150 more in the pipeline, which should add a significant amount of multi-unit residential, office, and retail space, as well as new hotel supply, over the next five years.AirportThe Seattle-Tacoma International Airport is the regional air hub of the Pacific Northwest and is served by various domestic and international commercial airlines. The airport handled over 45 million passengers in 2016, compared to the 31 million (rounded) in 2010. In response to the growing passenger traffic, the airport is undergoing a series of renovations and expansions, including opening a new International Arrivals Facility, installing a new baggage system, and renovating the airport's 40-year-old North Satellite concourse. Furthermore, as Seattle-Tacoma International Airport passenger counts continue to rise, the airport's master plan includes an estimated $10-billion expansion project that will add 51 additional aircraft gates over the next 20 years to sustain growth. In addition, the new, 300,000-square-foot Federal Aviation Administration's (FAA) regional headquarters office is under construction and scheduled for completion in 2018. This location will serve as the new home of the Northwest Mountain Regional FFA office.TourismSeattle's economy has been bolstered by strong tourism levels. King County welcomed roughly 39 million visitors in 2016, and visitor expenditures reached $7 billion that year, a 3.8% increase from 2015. Many visitors come to the area to take an Alaskan cruise during the summer months. In 2016, 203 vessel calls originated from Seattle's cruise terminals, carrying 980,000 passengers (rounded). The passenger count is forecast to surpass one million in 2017. According to Port of Seattle, the cruise industry generated approximately $459 million in business revenue in 2016. In addition, Seattle also hosts a wide variety of cultural activities, concerts, bazaars, and festivals. Safeco Field, home to the Seattle Mariners Major League Baseball team, and CenturyLink Field, home to the NFL's Seattle Seahawks, are both located in the SoDo neighborhood. In 2017, Adam Silver, the National Basketball Association's commissioner, indicated that the NBA is planning to expand in the near future and that Seattle is one of the potential homes to a new NBA franchise. On the collegiate level, the University of Washington draws a significant number of visitors during the football season.ChallengesWhile Seattle is on the growth trajectory, the city has its own challenges. Seattle has some of the toughest labor laws, which affects the hospitality industry. In September 2016, Seattle passed a law that requires a 14-day window for setting the employee work schedule. Additionally, employers are required to offer more hours to existing employees before hiring new workers. Furthermore, the skyrocketing home prices and the increasing homeless population are also part of the growing pain. As of October 2017, the median home price in Seattle reached $725,000.Bellevue SnapshotThe city of Bellevue is located across Lake Washington from Downtown Seattle. This upscale suburb offers a growing downtown area that houses large corporate offices for companies such as Microsoft, Boeing, Expedia, Walgreens, and Verizon. In addition, T-Mobile USA is headquartered in the Eastgate neighborhood of Bellevue. In 2016, Amazon announced its plan to occupy the new Centre 425 building in Downtown Bellevue, and in 2017, Salesforce.com moved into the 929 Office Tower. Additionally, the opening of the 400 Lincoln Square office tower will house tenants such as WeWork, Valve, Samsung, and Pokemon. Bellevue continues to provide an attractive business environment for the innovative industries. In 2016, Recreational Equipment, Inc. (REI) announced it would move its headquarters from Kent to an eight-acre site in Bellevue's new Spring District development by 2020. The Spring District is a new, 16-block, mixed-use project in Bellevue that is also a part of the Mountains to Sound Greenway. The $2.3-billion project will include a light-rail station, multi-unit residential buildings, and office space; upon completion, it is estimated to house 2,000 residents and 13,000 office jobs. According to the third-quarter 2017 Major Projects Report released by the City of Bellevue, nine major projects are under construction, encompassing over 600 residential units and at least 1,300,000 square feet of commercial office/retail space. A couple of new hotels in the pipeline include a Hilton Garden Inn and the Four 106, while the AC Hotel by Marriott and the W Hotel recently opened. In addition to these projects, 20 additional development projects in Bellevue are in various stages of planning or permitting.New SupplyThe growth of the market has prompted new hotel development. The following table illustrates new and proposed hotel supply in the Seattle-Bellevue-Redmond market.ConclusionThe Seattle metropolitan area is one of the top ten metro markets in the United States experiencing the most supply growth. According to STR, there were 4,254 rooms under construction as of October 2017, equating to 9.4% of the existing hotel rooms; nevertheless, year-to-date through October 2017 data show 6.2% RevPAR growth coinciding with the 2.9% supply growth. STR noted that Seattle will be one of two U.S. markets forecast to register growth in the range of 5% and 10% for full-year 2017, while most other major markets will grow in the range of 0% to 5%. The depth and strength of demand generators spanning the Seattle metropolitan area have supported the current strong market dynamics. While the entrance of many new hotels remains to be a concern for local hoteliers, the exponential growth of Amazon, the revitalization of Downtown Seattle, and the increasing attractiveness of Bellevue are anticipated to sustain future demand growth in the market. http://www.seattletimes.com/business/amazon/thanks-to-amazon-seattle-is-now-americas-biggest-company-town/ https://cdn.downtownseattle.org/files/research/development-guide.pdf https://www.portseattle.org/Cruise/Documents/2017_cruise_factsheet.pdf
HVS · 3 January 2018
Interpersonal Service and Talent DroughtSpa treatments and correlating services are customarily viewed as manual-therapies with an important emphasis on the unique interface between (a client and a provider). This person-to-person relational component is a critical measure that often determines the overall experience and tone of the elected treatment or service, client satisfaction and the future efficacy of this relationship. While personal-touch is an essential component of the spa industry, the impetus of the industry has accelerated at a rate much faster than the growth of the workforce necessary to support it. Combined with an influx in hospitality development, technological investment hesitation and mitigating employee turnover- keeping pace to hire and train new talent, have not made early adaption an easy process. Consequently, the lack of acclimatization not only impacts leadership, but operational consistency and fiscal volume.A recent study conducted by the United States Department of Labor, Bureau of Labor Statistics found that employment within the beauty and wellness arenas hold substantial projected growth in the U.S. economy. The study discovered "hairdressers, barbers and cosmetologists have faster than average job growth, citing an average 10% annual increase in employment from 2014 to 2024." Furthermore, the study noted a "62% average annual turnover as people seek career advancement and new opportunities", resulting in "more than 400, 000 available job openings per year, " in the U.S. alone.Further research by the Global Wellness Institute GWI, shared by the [Spa and Wellness Career Development Initiative] reports that "By 2018, we will need 2.7 MILLION employees in the spa industry to meet demand, with the United States, China, Germany, Japan, and Russia leading the job creation." This data underlines the scope of global spa, wellness and beauty growth which reveals the industry will "need an additional 80, 000 Spa Managers and Directors and 500, 000 Spa Therapists more than the workforce in 2013." Recognized as an industry of independent talent, this rouses important variables to consider pertaining to hiring and training. It also presents a need to reconsider operational models that promote continued progress. Understanding where the challenges are can help navigate new pathways to improve and transcend standard operational policies.Reorganizing a ParadigmTraditionally spa and wellness operations have been divided into departments and categories centered on performance and profitability, fixed on manual services to generate the bulk of treatment revenue and sales. Considering the increasing challenges to recruit and retain experienced talent, the diversification of this model requires new elements of protective foresight and calculated planning. Administration and retail components rely on savvy customer service, constant product education and the aptitude to sell. Retail sales measure between 10% to 35% of spa revenue. It's important to provide the resources and tools required to optimize the front desk and administrative performance. Appointment setting and new client intake procedures can be reintroduced with more efficiency to foster extra attention on customer care. Services and retail are a spas biggest revenue producers. However, labor costs and overhead make up a considerable portion of the yield. Compensation structures vary depending on location, region and spa-type. Nonetheless, labor costs run between 45% to 60%. In addition to operating expenses that fall between 35% to 40%. With such a big percentage of sales and service revenue going to labor and overhead, profitability can be challenging even with a well-organized and fully staffed team. A model that is solely dependent on the expertise of licensed providers with an emphasis exclusively on manual actions, will be at a disadvantage as technology continues to accelerate and improve. Whereas traditional spa treatments and personal care services cannot solidly be replaced by technology, nor should they ... It is essential to integrate a subset of automation and new applications. This process will help insulate investors and stakeholders from labor liabilities and staffing challenges that could undermine a spas peak performance. Moreover, industrializing a percentage of spa services will introduce new modalities, create profitable new income streams and protect investments with a relatively fast return on investment. In the figure below, I have simplified these components into three specific groupings based on functionality, industry evolution and impending future growth. I divided these into the following three groups: manual services, administration and retail, and automated services. Each set represents approximately a third of the operational structure in contrast to the long-standing traditional paradigm. By dividing operations into three specific sets, this introduces a "new model" focused on the future, to upsurge agility and increase profitability.InvestmentThe investment to feature new technology fluctuates considerably. These applications should be selected carefully. Without exception, all levels of change are unique for every spa. Each spa has distinct variables to consider such as location, hotel occupancy and volume. These choices should be founded on the goals of the property, company culture, budget ratification and asset planning. Deploying function without purpose, is counterproductive. And authenticity and transparency are indispensable. It's also critical to understand the opportunities associated with the investment, perceived value, marketability and required training. Embracing innovations in software will increase data capture, enhance guest profile analytics and keep marketing and strategic choices timely and relevant. Data is a currency. Data that is gathered through the hotel is pertinent to the metrics of the spa. Deciphering it with systems designed to predict important sequences can provide useful insight, mark milestones and help set important goals. Software can also support employee rotation cycles, manage daily duties more successfully and reorganize priorities vs. demands for better management of quality and time. "Because customer demand can be unpredictable and often doesn't match up with staffing schedules, it can be a challenge to fill appointments with high-quality providers. Tech like Zeel allows spas to tap a large pool of vetted, licensed providers, on demand," said Samer Hamadeh, CEO of Zeel. (3) Hamadeh also cites the value of "wellness technology as it facilitates easy payments, scheduling, and service reminders." Taking advantage of these resources leaves more time for cultivating the team of people who provide the social relationships that fuel the business. It also increases access to quality with operational flexibility.Automated TreatmentsAn increasing selection of automated services offer a wide-range of proven health and wellness benefits including: deep relaxation, sleep tribulations, stress, chronic pain, and a variety of common health issues. Some of these applications include halotherapy systems (known as salt therapy), float pods and tanks, products like BOD PODS and cryotherapy chambers. There are also a variety of frequency devices and treatment table innovations that apply modalities using chromotherapy (light and color), vibration and sound. In addition to these, there are exciting advancements in sleep, neurological health and audio-visual applications involving virtual reality and digital environments to aid relaxation, trauma and reduce stress. With distinct neural and physiological benefits, these modalities are increasing in popularity, mass and demand. Furthermore, these services do not require a licensed professional to deploy them. They generate a service fee uninhibited by typical commission models and free from provider overhead. They can be offered in place of a conventional service, introduced as pre-treatment, post-treatment or as add-ons to help manage busy scheduling and groups. Ultimately, this is a "new breed of spa services" that produce tangible wellness benefits, meet on-demand expectations and significantly increase treatment revenue. Furthermore, the personalized health landscape continues to evolve with new diagnostic customizations and wellness applications, driving a call for new services. Hotels and resorts have an extraordinary opportunity to diversify their spa and fitness programs. The International Spa Association ISPA 2016 U.S. Spa Industry Study (4) highlights "hotel and resort spas have an average of 12, 595 square feet, per establishment." (figure 2) Compared to day spas, medical spas and others that have an average square footage of 3, 904. Reallocating the space of unused treatment rooms and low-traffic fitness areas can produce viable fresh returns.Other ways to engage technology include, new aesthetic and massage instruments, live-fitness and internet applications, personalized spa apps, digital entry and more. The question is, who will use them? How will they use them? Not just today, but in one-year, two-years or more.Demand and DeliveryWhen it comes to bringing these various aspects into play, balancing integration helps manage the curve. It is vital that all elements of the up shift are understood and backed by employees and management. Whereas, these assets should be considered new resources and tools, not countermeasures designed to create uncertainty. Balancing empathy, nature and personalisation with innovation and technology epitomizes the "freedom to choose". There are plenty of people who choose not to visit a spa for the simple reason they are uncomfortable being touched. Automated services are a way to capture these customers by offering an easy, personal and hands-free alternative to traditional spa services. There's a lot of energy pursuing the millennial market. Appealing to this market requires flexibility, constant creativity and new strategies. Millennials shop products and services with a radically different view on value, quality and time. Businesses seeking the millennial spend and loyalty, need to know how to react, create the right incentives and be willing to change. Technology becomes a part of this. Statistics and data are providing realistic assumptions about market growth. And with any rapid development, there are always growing pains. By taking actions to leverage technology you can mitigate the increasing stress to remain competitive. Meanwhile, it's not solely about lateral market competition. It's about pleasing innovative and informed guests seeking services that meet their imminence and whim. Demands for spa and wellness services are changing. While massage and aesthetics are still the most commonly requested services, there are increasing modalities catered to wellness and prevention. Underestimating the benefits of new technologies will result in faster moving, more dramatic fluctuations in performance. Knowing how to choose new applications and integrate new systems is well worth taking the time to understand. Thereby, customizing new applications creates meaningful advantages for everyone, guests, employees, owners and stakeholders.Reprinted from the Hotel Business Review with permission from www.HotelExecutive.com.
HVS · 2 January 2018
The following article details new developments in and around Fort Worth's primary neighborhoods that affect the area's hotel industry.Fort Worth's EconomyDespite plummeting oil and gas prices and increased activity in other parts of Texas and across the country, the energy industry continues to provide ongoing benefits to Fort Worth's economy. AllianceTexas, an 18,000-acre industrial, office, and retail development has also become a primary economic engine. Boasting a diverse workforce, Fort Worth has grown from a dusty town along the famed Chisholm Trail to the fifth-largest city in Texas and the sixteenth-largest city in the nation.MilitaryNaval Air Station Joint Reserve Base Fort Worth (NAS Fort Worth JRB) lies five miles west of Fort Worth's Central Business District and is home to a variety of Navy, Marine Corps, Air Force, Army, and Texas Air National Guard units. Lockheed Martin Corporation, based in Bethesda, Maryland, has extensive operations in Fort Worth. Lockheed Martin's Fort Worth plant produces the F-35, the nation's most sophisticated fighter jet.Energy ProductionSlick-water fracking, which traces its origins back twenty years to an area just north of Fort Worth, has lent a massive boost to the production of oil and gas from shale. The Barnett Shale is a natural gas deposit that may contain up to 30 trillion cubic feet of gas. The shale play covers 17 counties, extending west and south of Tarrant County, and is a major force for production. Local officials report that employment has stabilized at energy companies in Fort Worth, and oil and gas production started ramping up again across Texas in 2016, a trend that has continued at a slow but steady pace. Companies are also becoming involved with alternative forms of energy, with several plants in operation in small towns throughout the greater Fort Worth area.TransportationAirlines Group Inc. has its headquarters campus in the far eastern city limits of Fort Worth; a new, 1.8-million-square-foot, five-building office headquarters complex is scheduled to open in 2019. Along with its headquarters offices and ample operations throughout Dallas/Fort Worth International Airport, American Airlines Group Inc. also executes most its training operations at its DFW facilities. Burlington Northern Santa Fe (BNSF) Railway, the second-largest freight transportation company in North America, maintains its corporate headquarters in the Fossil Creek area of Fort Worth. BNSF operates a rail network of 32,500 route miles in 28 states and three Canadian provinces. In April 2016, BNSF partnered with AllianceTexas developer Hillwood and plastics logistics firm Packwell to build a new plastics export-packaging facility in Alliance Westport, the rail-connected industrial sector of AllianceTexas, a master-planned, mixed-use community located on 18,000 acres in northern Fort Worth. Owned by the City of Fort Worth and managed by privately held Alliance Air Services, Fort Worth Alliance Airport (AFW) is the world's first 100% industrial airport designed for cargo and corporate aviation. AFW also anchors the nation's fastest-growing industrial complex, Alliance Global Logistics Hub, which has roughly 9,600 acres designated as Foreign-Trade Zone (FTZ) No. 196--a major advantage in attracting importers. Alliance Global Logistics Hub is among the top FTZs in the nation. Shipping by air is reliable and quick, but also costly. Hence, air freight usually consists of highly perishable or particularly valuable goods. Dallas/Fort Worth International Airport and Alliance Airport combine to make the region one of the nation's leaders in air cargo shipments.Revitalization and GrowthA master plan that began in 1988 has since created new developments in Downtown Fort Worth that include Sundance West, Sundance East, the Nancy Lee and Perry R. Bass Performance Hall, and the Chase Bank Building. The final project, the renovation of Sundance Square, was completed in 2013. Moreover, a major catalyst that changed the infrastructure and economic landscape of the city was the Fort Worth Tornado in 2000 that devastated the downtown area, but also ultimately helped transform the face of the city's core. The January 2009 opening of the Omni Convention Center hotel changed the both the hotel landscape and the city's skyline; the 34-story luxury hotel boasts a unique structural design. Ongoing hotel development in Fort Worth includes both ground-up construction projects and the rehabilitation and adaptive reuse of existing buildings. Much of the last-decade's development of Class-A office space in Fort Worth came from the conversion of existing Class-B office space. By far the largest new development in the Downtown Fort Worth office market is the Frost Tower project, a 25-story, Class-A office building with approximately 278,000 square feet of rentable area, with Frost Bank as the largest tenant. Other tenants include Jetta Operating Company Inc. and Anthracite. This tower topped out in the fourth quarter of 2017.The Trinity River Vision, an 800-acre project directly north of Downtown Fort Worth, will effectively double the size of the downtown area. The Army Corps of Engineers has been tasked with redirecting a portion of the Trinity River to add roughly twelve miles of waterfront property, creating what will be known as Central City, but commonly referred to as Panther Island. The project will correct some flooding areas and expand Gateway Park into one of the largest urban-programmed parks in the nation. Ultimately, $526 million of a massive $10-billion federal bill will be spent on Fort Worth's Trinity River Vision. This project has already sparked development interest in the area, as construction on a 300-unit residential building started in 2017. Upon completion, this $909.9-million project is estimated to create an annual economic impact of more than $1 billion dollars.ConventionsA 2014 study of convention demand, completed by Hunden Strategic Partners, recommended a renovation of the aging Fort Worth Convention Center, as well as an increase in hotel supply to support additional convention demand. This has since spawned a collection of tax abatements and incentives. Portions of the western area of the convention center facility have been refreshed to encourage usage; however, a detailed renovation plan has not been announced. The City of Fort Worth is also considering building a second convention center from the ground up, either on the new Panther Island or in the Stockyards area. Once the money is recouped from the City's investment in the new arena at Will Rogers Coliseum, local officials believe that the next major investment will be in this proposed convention center. With the interest in expanding convention facilities, local officials are concerned with the number of hotel rooms available to convention attendants. Hotel supply has already run short, relative to demand from the existing convention center. Hence, the development of an additional convention center would likely be in tandem with a significant increase in hotel supply in Fort Worth. As with Downtown, the City seeks to maintain the historic look of the Fort Worth Stockyards while simultaneously encouraging development efforts in the area. Spearheaded by a partnership of Fort Worth's Hickman family and Majestic Realty Group, a $175-million development plan for the Stockyards will include redevelopment of vacant land and the rehabilitation of existing historical buildings.Dickies ArenaConstruction began on the first phase of the $540-million, 14,000-seat multipurpose Dickies Arena in April 2017. Voters approved $225 million for the $540-million project in 2014. Dickies Arena is expected to open by 2020. The arena will host the first and second rounds of the NCAA Division I Men's Basketball National Championship in 2022, the first NCAA men's basketball tournament held in Fort Worth since 1970.Other DevelopmentsThe Clearfork project, located farther west, along the Chisholm Trail Parkway, is a 270-acre development on the Edwards Ranch property. This mixed-use project includes luxury retail, restaurants, office, and entertainment. The open-air shopping center has been compared to the Metroplex's most upscale retail destinations, such NorthPark Center and the Galleria Dallas. The Chisholm Trail Parkway has promoted commercial and residential development in southwest Fort Worth, and the new roadway quickly links the Hulen Mall area to Downtown Fort Worth.Northern Fort WorthTexas Motor Speedway occupies a large site in the north side of Fort Worth, where other major land uses include the Fort Worth Alliance Airport, the mixed-use community AllianceTexas, a Cabela's retail store, and the Alliance Town Center. A Buc-ee's travel center southwest of Interstate 35W and State Highway 114 opened in May 2016. A Tanger Outlet mall opened in October 2017 near the Texas Motor Speedway; the 350,000-square-foot center is the chain's fourth location in Texas. While a handful of stores are still under construction, brands such as Brooks Brothers, Cole Haan, Steve Madden, Nike, and Michael Kors, for example, are all represented. In February 2017, IKEA announced plans for a 289,000-square-foot store at the southwest corner of Interstate 35W and North Tarrant Parkway.In October 2015, construction began on a $250-million, multi-year project to extend runways at the north end of Fort Worth Alliance Airport. The expansion will allow greater flight capability and enable long-haul flights to take off fully fueled under almost any weather conditions, as well as allow FedEx to offer direct air-cargo service to Europe and Asia. The project should be completed during the first quarter of 2018.Hotel TrendsDowntown Fort Worth The newest full-service property in Downtown Fort Worth is the Omni Convention Center hotel, which opened in January 2009. The most notable recent sale was the Ashton Hotel in July 2014; the 39-unit boutique hotel traded for just over $205,000 per room. Since 2014, estimated occupancy for the aggregate of full-service hotel supply in the CBD has held close to the 70% mark. Similarly, the strength of the local economy has allowed for consistent average rate (ADR) growth over the past three years, registering aggregate gains of roughly 3% per year. The aforementioned redevelopments in the city's core have also spurred interest in hotel development, and developers have aimed to bring more modern brand concepts to Downtown. In October 2017, both the 210-room Hampton Inn & Suites by Hilton and the 114-room Fairfield Inn & Suites by Marriott opened, the latter the result of a massive renovation of the former Park Central Hotel. Moreover, construction recently commenced on a 162-room, ground-up Hilton Garden Inn, while two additional hotel projects are nearly complete: the redevelopment of the Sinclair Building, to house a 164-unit Autograph Collection hotel, and the development of a 180-room Aloft hotel within the existing One City Place building. Plans are also underway for an AC Hotel by Marriott on the parking lot adjacent to the historic Kress Building; since the latest published room count of 218, the developers have announced that an additional floor would be added to the project. Other planned hotel projects in Downtown Fort Worth include a Residence Inn by Marriott, a Canopy by Hilton, and a Hyatt House.The significant influx of supply is likely to offset occupancy growth in Fort Worth over the next few years. The number of convention events and attendees, however, are on track for banner years in 2017 and 2018. The slow and steady return of demand related to the energy sector is a positive sign for both occupancy and average rate, as area hotel managers hope to capture this highly rated source of corporate transient demand. Finally, the upscale and upper-upscale nature of the incoming supply bodes well for ADR growth in the long term given the elevated quality level of guestroom product at these hotels.Hotel Trends in the Stockyards, West 7th, and the Cultural District SubmarketsPrior to 2017, only a few hotels were located within Fort Worth's Stockyards, West 7th, and Cultural District submarkets. Once viewed as periphery markets to Downtown Fort Worth, these areas continue to gain popularity for commercial office space, retail outlets, restaurants, and entertainment venues. The success of the Hilton Garden Inn and Homewood Suites by Hilton in the periphery Near Southside/Medical District, which opened in 2012 and 2013, respectively, has further encouraged developers to target submarkets outside the core of Downtown Fort Worth. The Stockyards are expected to experience a resurgence like that of Downtown following the completion of the redevelopment efforts. However, there are some regulatory design efforts by the City that may constrict some potential hotel developments in the area. The Trinity River Vision, however, has the potential to create an unparalleled amount of hotel development activity in Fort Worth. As one of the more popular destinations for nightlife, West 7th represents an appealing opportunity for developers given its significant retail, restaurant, and residential components. In February 2017, the 124-room Courtyard by Marriott opened in the Stockyards. Other planned hotel projects in the Stockyards include a SpringHill Suites by Marriott and The Armour, a boutique hotel to be located on the site of the former Armour Meat Packing Plant. In early 2017, Heart of America Group announced plans for a full-service boutique hotel, to be called Hotel Renevo, at the northwest corner of Camp Bowie Boulevard and Van Cliburn Way, among this neighborhood's many museums. The Left Bank Mixed-Use Development includes a hotel aspect, likely consisting of a 200-unit boutique hotel. A TownePlace Suites by Marriott is nearing completion at a site west of the Chisholm Trail Parkway/University Drive interchange. Boasting high-end retail and office space, as well as a variety of restaurants and outdoor space, The Clearfork development is rumored to have a boutique lodging product planned. Moreover, an extended-stay property also appears to be in the early stages of development within the Cultural District neighborhood, though no details on branding or room count have been announced.Similar to Downtown, incoming supply in these submarkets is expected to decrease occupancy over the next few years. Unlike Downtown, however, these markets do not have a large, diverse supply of existing hotels. As such, the new supply represents proportionally larger increases for these submarkets, which could be a concern. Construction of the new Dickies Arena, however, and the major events it will host once open, bode well for attracting hotel demand.Fossil Creek and AllianceTexasDespite the 2016 opening of the SpringHill Suites by Marriott, the Fossil Creek market has maintained strong occupancy and ADR levels, registering aggregate RevPAR growth of roughly 6% since 2013. This recent trend has been heavily influenced by increased commercial demand in the Alliance area, which has outpaced current guestroom supply. A new Sleep Inn Hotel & Suites is slated for completion by mid-year 2018, just south of the Holiday Inn Express Hotel & Suites Fort Worth I-35 Western Center. Explosive commercial development along Interstate 35W, particularly focused in the Alliance developments, has drawn the attention of hotel developers. A Home2 Suites by Hilton opened by the Texas Motor Speedway in August 2017, and a Fairfield Inn & Suites by Marriott is under construction. A Courtyard by Marriott at Alliance Town Center, currently one of only two select-service hotels in Alliance, is anticipated to be joined by an Aloft hotel in 2019.HVS expects demand trends in the Fossil Creek area to increase modestly. However, reconstruction efforts along Interstate 35W are anticipated to end by the close of 2017, shutting off a major source of demand for lower-rated hotels in the Fossil Creek market. Although the long-term outlook for the Alliance submarket is positive, supply increases in the short term may prove difficult for area hotel managers, as this submarket's supply is expected to more than double over the next few years. The area's master-planned community, however, is home to some of the strongest commercial demand generators in the greater Fort Worth area. As such, the incoming hotels are anticipated to capitalize on existing demand that had previously been captured by neighboring submarkets.Wrap-UpBetween multimillion-dollar, mixed-use developments, either in the works or up-and-running, and major upcoming events like the NCAA basketball tournament, which promises to draw tens of thousands, the outlook for Fort Worth's hotel industry is strong from a demand perspective. Developments like Panther Island are literally moving the earth, and AllianceTexas continues to extend its influence on the economy and hotel industry in the northern parts of the city. This demand generation makes the expansion of proposed hotels into some of Fort Worth's outlying submarkets opportune. While occupancy may decline somewhat over the next several years as the new hotels are absorbed, the strength of Fort Worth's fundamental economic drivers and hotel generators should keep the market moving in a positive direction over the long term.
HVS ·19 December 2017
Philadelphia lays claim to many firsts in the U.S., including the first state capital, public library, hospital, stock exchange, and even the nation's first zoo. Today, revitalization efforts continue to fuel the city's engine of innovation, building on a base of airport, tourism, education, and convention demand drivers. Strong group demand in recent years, combined with rising levels of transient corporate and leisure travel, has boosted occupancy and average daily rate (ADR), especially within Philadelphia's Center City submarket.Major Economic DriversCenter City Philadelphia, which includes the Central Business District and central neighborhoods of Downtown Philadelphia, has grown into the second-most-populated downtown area in the United States, after Midtown Manhattan in New York City. Many colleges and universities make Philadelphia a top international-study destination, and the area continues to evolve as the educational and economic hub of the Delaware Valley. Higher-education institutions located within the city include the University of Pennsylvania, Temple University, Drexel University, Philadelphia University of the Sciences, and Philadelphia College of Osteopathic Medicine. The healthcare sector also contributes to the economic vitality of Center City, further supporting hotel demand in the area. Jefferson Health System's flagship hospital, Thomas Jefferson University Hospital, and Hahnemann University Hospital, which is affiliated with Drexel University College of Medicine and St. Christopher's Hospital for Children, are located in Center City. Additionally, Independence Blue Cross is the region's largest health insurer.The Pennsylvania Convention Center (PCC) plays a vital role in the area's economy; its success is supported by the city's convenient location with respect to both New York and Washington, D.C., as well as its popular facility layout and capacity. In July 2016, the convention center hosted a number of caucus meetings related to the 2016 Democratic National Convention, which attracted approximately 60,000 participants. According to officials at the PCC, activity at the convention center is expected to be down in 2017 and 2018; however, numbers are anticipated to increase in the ensuing years.Future Business CaptureThe aforementioned demand generators in the education, healthcare, and convention sectors have the potential to attract additional price-sensitive guests seeking midscale hotel accommodations in Center City.Existing Hotel SupplyThe Center City submarket currently includes approximately 11,000 hotel rooms, comprising primarily upscale and upper-upscale, full-service hotels; moreover, the submarket's existing luxury hotels include the Ritz-Carlton, Rittenhouse Hotel, and Hotel Monaco. However, there is a notable void of limited-service hotels within the Center City submarket, and no limited-service properties are in the anticipated pipeline of new supply.Proposed SupplySupply growth in Center City Philadelphia is positioned to exceed 18% over the next two years. The most significant growth is occurring within the luxury chain scale, which represents 32% of the proposed new supply, with upscale hotel development falling just behind it. The development of a new Four Seasons hotel is underway atop the under-construction, 1.28-million-square-foot Comcast Innovation & Technology Center; the 60-story, 1,121-foot tower will neighbor Comcast Center, Comcast Corporation's global headquarters, and become a dedicated home for the company's growing workforce of technologists, engineers, and software architects. Additionally, the Courtyard by Marriott is currently undergoing a $23-million renovation in its rebranding to an Autograph Collection by Marriott affiliate, a higher-rated hotel product. The construction and renovations of higher-tiered hotels in Center City come on the heels of some record sales in the submarket, including Hersha Hospitality Trust's purchase of the Westin Philadelphia for over $495,000 per key in June 2017. Furthermore, the dual-branded W Hotel and Element, now under construction, will represent the largest hotel property in Downtown Philadelphia.Even with the expected introduction of nine hotels in the downtown area over the next two years, there are still areas of opportunity for hotel development in this rapidly growing city.Potential Opportunities for Midscale HotelsThree of the nine proposed hotels in Philadelphia--one third--are luxury properties, a reflection of strong demand generation from the city's corporations, among other high-end generators. At the same time, the city's relatively low number of midscale to upper-midscale, limited-service supply is expected to increase by just one hotel. Hence, even after the completion of the proposed new supply in Philadelphia's Center City, limited-service hotels will be the most underserved hotel type, currently representing just 7% of the total guestroom supply, and anticipated to move up less than 1% in the next two years. Additionally, midscale and upper-midscale hotels will only represent 3.3% and 8.9% of guestrooms, respectively, with the completion of the new supply entering the market. Given the availability of a well-located site, coupled with an appropriately priced construction cost, the Center City Philadelphia submarket represents a favorable option for the development of additional properties in this hotel class.ConclusionGrowth and expansion are undoubtedly underway in Philadelphia's Center City, with ongoing projects such as the construction of the Comcast Innovation & Technology Center and a ramping up of the Philadelphia Convention Center creating jobs and hotel demand. Furthermore, city officials have been actively working on attracting large events, such as the Papal visit in 2015, the Democratic National Convention in 2016, and, most recently, the NFL draft, which should continue to bode well for hotel demand growth in the near term. The significant increases in proposed supply over the next two years are anticipated to be easily absorbed by unaccommodated demand in the submarket. Furthermore, a larger, more diverse hotel base will allow for substantial citywide conventions to be accommodated in Philadelphia. While the influx of new supply may seem like a dissuasion for potential hoteliers, midscale to upper-midscale, limited-service hotel properties do have potential to gain a foothold in the Center City submarket over the next several years.
HVS ·19 December 2017
Major Economic Contributors & DevelopmentsDisneyland ResortDisneyland is undoubtedly a prominent demand generator for hotels in Orange County, attracting over 15 million leisure visitors per year. Disneyland's 60th anniversary celebration, which began in May 2015 and concluded in September 2016, induced a significant amount of demand, making 2015 a banner year for the market. Moreover, according to Visit Anaheim, 12,083,000 visitors traveled to Anaheim in the year-to-date period through June 2017, an increase of 10.6% over the same period in 2016.The Star Wars: Galaxy's Edge will open with two anchor attractions: one that gives guests the chance to pilot the Millennium Falcon on a customized secret mission, and another that puts guests right in the middle of a battle between the Frist Order and Resistance. Construction on the 14-acre attraction, which began in April 2016, is slated for completion in early 2019.Anaheim Convention CenterThe Anaheim Convention Center (ACC), which opened 50 years ago, is the largest convention center on the west coast, spanning a total of 1.8 million square feet. Completed on September 26, 2017, the convention center's seventh expansion created 200,000 square feet of additional space.ACC representatives report a strong booking pace associated with the recent expansion and the addition of new hotel supply in the market, which will reportedly allow the convention center to target higher-rated medical and high-tech groups.LT Platinum CenterThe 14.5-acre LT Platinum Center, located near the Honda Center and Angel Stadium, is a mixed-use development project that will include a 200-unit hotel, an urban food market, an entertainment venue, and a town plaza, as well as 400 residential units, upon completion in 2022.Orange County's First Shipping-Container Food Hall SteelCraft Garden Grove, to be located on a 1.8-acre lot behind City Hall in Garden Grove, will feature 20 artisanal retailers and restaurants selling goods from cargo containers measuring as long as 40 feet in length. The project is part of a major effort by city officials to revitalize Downtown Garden Grove with destination shops and dining and is scheduled to open in 2018.Lodging Market OverviewThis Anaheim/Garden Grove market spans nearly 160 open and operating lodging facilities. Lodging revenues and transient occupancy taxes have increased year-over-year since 2010/11.New SupplyFollowing the success of the addition of "Cars Land" at Disney's California Adventure, the recent expansion of convention center, and in anticipation of the opening of " Star Wars: Galaxy's Edge," several hotel projects throughout Anaheim and Garden Grove have either recently opened or are in various stages of development.Recent Transactions Strong hotel performance and the potential of this market have drawn investors to seek hotels located here. The following table sets forth hotel transactions in the Anaheim/Garden Grove market since 2015.ConclusionThe Anaheim/Garden Grove market is primarily driven by the tourism and leisure industry, with visitation levels continuing to increase. The recent expansion of the convention center is expected to attract new events and visitors, which should positively affect the local economy. Given the area's desirable weather, many tourist attractions (including Disneyland), and the presence of three international airports within 70 miles, the market outlook is positive.
HVS ·19 December 2017
The Detroit metropolitan area has experienced significant economic growth in recent years, fueled by a strengthening auto industry as well as the continued diversification of the local employment landscape. The hotel sector is benefitting from existing employers expanding operations locally and new entrants to the market. The Big Three automakers continue to invest in the region, while companies like e-commerce giant Amazon.com Inc. are building large warehouse facilities. Revenue gains for hotels were accordingly robust during the 2010-2016 period. Revenue per available room (RevPAR) during that stretch grew nearly 71 percent, rising from a low of roughly $38 in 2009 at the depths of the Great Recession to over $64 by year-end 2016. Both the average daily rate (ADR) and occupancy have posted consistent gains since 2010. Moreover, hoteliers sold a record number of room nights in the city of Detroit in 2016, according to STR. Occupancy levels approached 70 percent by the end of 2016, with ADRs of nearly $150 in the central business district (CBD). The data for 2017 show a relatively stable occupancy level with robust gains in ADR. The record performance achieved in this expansionary period has spurred tremendous hotel development in the downtown core and suburbs.CBD is Hotbed of ActivityIncreased room demand within Detroit's CBD has outpaced additions to supply, resulting in historically high occupancy levels and even stronger ADR growth. Year-to-date through September, the metro Detroit hotel market posted a 0.4 percent increase in the occupancy rate and a 5.6 percent rise in the ADR. This has resulted in an overall 6 percent increase in RevPAR when compared to the same period in 2016. Multiple developments are underway throughout the CBD, helping drive this growth. Little Caesars Arena, a new multipurpose arena for the Detroit Red Wings and Pistons that opened this fall, anchors the District Detroit, a 35-acre, $1.2 billion entertainment district. The opening of the arena has positively affected the leisure segment in the CBD. There is movement afoot to make the downtown area a technology hub. In February, software maker Microsoft announced plans to move its Michigan Microsoft Technology Center from Southfield, Michigan, to downtown Detroit in early 2018. There are about 40 such technology centers around the world. It's a place where Microsoft clients come to work on projects with the company's technicians. In October, Google announced plans to relocate to a new office building in the District Detroit. Healthy growth within the commercial segment is expected in the CBD due to the ongoing revitalization efforts that are transforming this market into a premier relocation destination for businesses and corporations. A number of hotel projects are in various stages of the development pipeline or have been recently completed. In May 2017, Aparium Hotel Group opened The Detroit Foundation Hotel, a 100-room boutique property. Furthermore, Bedrock Real Estate Development is currently constructing the boutique, 130-room Shinola Hotel, which is slated to open in fall 2018. The Siren Hotel, a redevelopment of the Wurlitzer Building by Brooklyn, New York-based development firm ASH NYC, is another boutique property under construction in the CBD. The boutique hotels are expected to help drive up ADRs. Other notable developments include an adaptive reuse project undertaken by Starwood Hotels & Resorts Worldwide that will convert the Metropolitan Building in downtown Detroit into a 110-room Element Detroit hotel, which is slated for completion by July 2018. Meanwhile, West Elm is set to open a 120-room hotel in Midtown Detroit in 2018, marking the retailer's first hotel development. Also, a planned 120-room Hampton Inn by Hilton Midtown at Woodward Avenue and Alexandrine Street is slated to open in the first quarter of 2021. The anticipated entrance of several smaller boutique properties, plus the renovations of existing hotels such as the planned $20 million refurbishment of the Westin, should support continued ADR growth with minimal impact on hotel occupancy levels.Strong Demand in SuburbsThe growth in hotel demand across the suburbs has outpaced new supply in recent years, resulting in a similar pattern in occupancy and ADR. The suburban submarkets are more reliant on the commercial segment than the CBD. The peak demand is Monday through Thursday, with a slight decline during the weekend. The strengthening auto industry has benefitted many other automotive suppliers. Meanwhile, manufacturers have expanded their operations. As a result, a rush of hotel development has begun throughout Detroit's suburbs, including the Farmington Hills, Novi, Livonia and Plymouth areas. Group 10 Management Co., based in Southfield, has multiple developments underway. A 106-room Courtyard by Marriott in Farmington Hills opened in early 2017. Adjacent to that property is a 140-room Holiday Inn scheduled to open in early 2018. Rounding out Group 10 Management's development pipeline is a 110-room Hampton Inn & Suites by Hilton in Livonia. Occupancy levels are expected to decrease slightly in the coming months as the new supply is absorbed. ADR growth is also forecast to slow in the near term, as market participants aim to maintain occupancy rates. Other suburbs are likely to experience similar trends.This article first appeared in the December 2017 issue of Heartland Real Estate Business magazine.
HVS ·14 December 2017
Currently the biggest socio-economic problem facing the Western Cape region is severe drought and related water shortages. The drought reached crisis levels in early October 2017 when the City of Cape Town estimated it only had 5-months of water left. It has been ongoing since 2015 when water storage in the city's dam levels began to drop, declining from 71.9% in 2014 to 50.1% in 2015. Declared the city's worst drought in a century, some dams and reserves have less than 10% of their usable capacity remaining. The biggest cause of water scarcity is the El Nino weather pattern with increased water demand due to population growth exacerbating the problem. Since 1995, Cape Town's population has grown from 2.4 million residents to an estimated 4.3 million by 2018, representing a near 80% population increase in 23 years. Dam water storage in the same period only increased by 15%.In response to the ongoing water shortage, the Hotel Industry in the region has had to embark on various initiatives to mitigate the challenges water scarcity brings to a water intensive enterprise. Studies show individuals can use two to three times the amount of water in hotels than they would use at home.The current environment has called for innovative measures in finding the delicate balance between complying with water restrictions on one side and keeping or improving quality service and the occupancy rate on the other. The hotel industry has remained agile in dealing with this trade-off, implementing training and awareness programmes across the value chain and Cape Town continues to welcome international and local travelers despite water crises.Through primary research HVS sought to gather information on how the industry struck this fine balance. By and large, the anecdotal findings suggest that hotels in the region have embraced the challenges of water scarcity.Discussions and FindingsA survey was sent out to over 100 hotels in Cape Town and the Western Cape. From hotels in the CBD where there is no possibility of acquiring a borehole to establishments in the Winelands requiring an increased amount of irrigation for vineyards and others located along the Garden Route facing ecological challenges- many different water restriction scenarios were probed. Nonetheless, all the respondents stated they comply with the location applicable water restrictions and did not have a municipal water consumption increase month-on-month, even though they are reaching peak occupancy levels at this time of year.Use of marginal resourcesTwo respondent hotels were already completely off the grid and another hotel is planning to be fully self-sustainable in the very near future. Even one of the big hotel chains in South Africa has announced that four of their establishments are being considered for off the grid, stating there are discussions currently happening with "various city partners around desalination plants and alternative water augmentation".There is one lucky city hotel which has a Table Mountain spring running through their property which has been used over 100 years for their laundry, to top up the pool and soon to flush all their toilets. 29% of respondents are not using marginal resources at the moment, but a further 24% have applied to drill a borehole or are actively reviewing the availability of ground water. Another 18% are mainly investigating rainwater harvesting systems.The biggest problem with switching to ground water, as one respondent succinctly put it, is "[the] legal process to register and legally [...] use this source of water takes several months, time that we don't have.".Water metering and costThrough water metering and frequent checks, possible leaks and high consumption areas can be identified and remedied. 76% of all respondents have been able to reduce their municipal water consumption. The One & Only has managed to cut their water consumption by 25% and Spier by over 50% in the last six months. Even Hotel Verde, known to be an environmentally conscious establishment (previously using 65% less water than regular hotels), has managed to decrease their meagre consumption by a further 27.8%.Two hotels in the city centre are installing water meters and dashboards to closely monitor individual consumption against certain targets. Even though consumption has decreased, 24% of the respondents experienced an increase in cost of water to the business, some by up to 20%. The problem is "[w]e are using far less water [but] the price per KL has gone up substantially [...] the net result is not cost saving to the business.". 18% of respondents, however, did see a decrease in water expense to the business.New storage facilities24% of all respondents have new storage facilities, including 10,000l, portable, static and rainwater tanks and a further 12% are planning on purchasing new/improved storage tanks soon.Tanks can overflow if the electronic warning systems fail but this is far outweighed by the benefits harvesting grey water.New devicesWhile over half of the respondents had already installed water saving devices like low flow shower heads in guest rooms, flow restrictors, aerators or sensor taps on all taps in guest and public bathrooms, kitchen and bar areas and waterless urinals. 6% are currently installing some of these devices and 12% are planning to in the near future. Bearing in mind the rising cost of water per kiloliter, perhaps they will have to go further in future. One respondent has purchased an atmospheric water generator that collects water vapor in the air, condenses and filters it to produce potable water. This water is so pure it is then sold as bottled water in the restaurant. Ellerman House in Cape Town even installed a device in every guest shower which counts down and warns guests when 2 minutes are up. Greywater systems47% of the establishments which responded to our survey already have grey water systems in place. One of them is a recovery system that utilises the laundry water, for irrigating gardens. Another establishment installed two grey water systems: one that treats and stores water from the kitchen and a number of rooms and is being used to flush public toilets in the banquet area and water the gardens. The second system recycles swimming pool backwash water for reuse in the pool. Some hotels in the Cape Winelands managed to recycle almost 100% of their grey water to irrigate vineyards and gardens. Budgetary constraintsThe installation of new systems, the purchase of new devices or drilling a borehole are large expenses for businesses and were previously not included in the budget. Two separate establishments stated that they incurred expenses of R250,000 or more over the last six months, which have not shown a reciprocal saving in reduced costs. This substantial investment is, however, sure to prove its worth in a lasting period of drought.Changed proceduresAll the respondents have changed their operational procedures in different ways. In the bar and restaurant area defrosted ice from machines, buckets and fridges is being collected and reused to water the gardens, pot plants or vegetable patch. Sinks to rinse and wash are only filled half way and rinsing water from fruits and vegetables and dishwashing water is being kept and re-used. All hotels who use disposable napkins cited reduced laundry as a primary reason. One group of hotels stated that they are even trying to eliminate the use of table linen whenever possible. And one 'sensible' establishment is suggesting saving water by drinking their wine. 88% of our respondents have made changes in the housekeeping department: including purchasing water saving washing machines, only washing with full loads and encouraging guests to re-use their towels and linen. Some establishments have outsourced their laundry or changed over to a more water-wise supplier. The majority of all respondents have removed their bath plugs or added a tag onto the plug, encouraging guests to take a shower instead. Ellerman House in Cape Town has made a point of only changing linen and towels every 4th day. 94% of Respondents have made alterations for their pools: covering them to counter evaporation, not refilling them automatically or closing them entirely. Spier has closed 6 of their 7 pools- the remaining one operates from harvested water. The only problem arises when guests would like to use the pools during hot weather however most guests show understanding. Another establishment says that their steam room is closed to avoid water wastage. Some other interesting practices include planting water-wise vegetation, closing off or reducing pressure on less-used taps inside and outside the building, low-drip irrigation systems under the lawn to reduce evaporation and making use of an environmentally friendly disinfectant called Eco-Lyte that itself is 99% water to reduce dishwashing cycles. For most hotels these new practices and procedures are being adopted well by their staff, and the water crisis is being mentioned at every staff meeting.Insurance and economic policyMany respondents have insurance or an economic policy for business continuation in place but the question remains: will the businesses be covered under those policies if the drought can be viewed as a natural disaster. Awareness Campaign100% of Respondents have water-saving awareness campaigns running for guests and staff via several channels including welcome letters, tip cards, posters, TV displays and during check-in.However, campaigns can only do so much when they run counter to expectations: "It can be a challenge to [get] international guests to cut back on water use as they view staying at a hotel as a luxury experience and want all of the trimmings." said one Respondent.challenge to [get] international guests to cut back on water use as they view staying at a hotel as a luxury experience and want all of the trimmings." said one Respondent.Going forwardInnovation is clearly going to be the deciding factor. How can we give guests more while using less?Here are some sterling recommendations from Respondents: "Invest in low-flow fittings and other technology now to reap financial rewards in the long run." - Hotel Verde "[...] [S]omething that we can suggest is installing [more] water meters. Not only will this give insight into how much you are using but importantly inform you when you have a leak." - Mont Rochelle Hotel & Vineyard "Analyse your operational consumption, focus on habits as this is easy to accomplish, gather data and implement water management project to reduce the high consumption areas. Recycle as much water as you can for alternative uses and communicate continuously without fail." - Spier "Start thinking innovatively to come-up with new, fresh ideas to prevent this crisis from extending any further." 94% of the survey respondents stated that the period of drought has permanently changed their business practices and personal habits. It's these personal habits - small, daily measures by staff and guests - that will make the biggest difference the longer this crisis goes on, but to solve it we'll need world-class innovation.Wesgro is proud to announce that Cape Town and Western Cape Convention Bureau has secured the International Water Association's (IWA) 2018 Water Loss Conference. Speaking on the subject, Western Cape Opportunities Minister Alan Winde said, "The water crisis presents an opportunity for innovative solutions, and I am looking forward to the recommendations which will emerge from the IWA's 2018 Water Loss Conference.". Implementation of those recommendations won't be left to individual hotels alone: "FEDHASA Cape supports the Western Cape Province and the City of Cape Town's Water Saving initiative, they signed a pledge which will be displayed in their respective properties for all to see and be reminded that Cape Town hotels are doing what's necessary to conserve water. In addition, FEDHASA Cape will also establish a 'Water Task Team' to assist members to, among other things, develop a water wise policy and implementation plan for their businesses, as well as assist with the capturing and monitoring process."It's time for everyone to pull in the same direction: with the drought heading into its second year, there is no excuse to be wasteful. Learn where you can reduce, save what you can recycle and continue forming habits that respect every drop.
HVS · 7 December 2017
Economic GrowthTexas TechTexas Tech University continues to be one of the most prominent economic drivers in Lubbock. The university's new Maddox Engineering Research Center opened in 2016, and the Honors Residence Hall opened this year. These facilities follow the expansion at Jones AT&T Stadium, which added more than 6,000 seats to the north end-zone prior to the 2016 season. As of late September 2017, a $48-million Sports Performance Center was still under construction south of Jones AT&T Stadium, but was already in use by the school's athletes. More recently, the Health Sciences Center (HSC) broke ground on the single-largest construction project undertaken at Texas Tech since its inception. The $85.9-million project will comprise three initiatives: a northern expansion with two new buildings, a western expansion of the existing Health Sciences Center facilities, and a new boulevard entrance to the entire HSC campus. The University, which comprises eleven colleges, currently has a student population of roughly 37,000, but expects to push that to 40,000 students by the 2020 enrollment year.RetailThe City of Lubbock is a primary shopping destination for West Texas and Eastern New Mexico, and also serves the needs of the growing Texas Tech student body during the school year. Citywide retail growth continues, especially in the West End District of Lubbock. The West End Shopping Center, which opened its first stores in November 2015, has recently welcomed new ones; as of October 2017, a Costco Wholesale, Cabela's, Marshalls HomeGoods, Nike Factory Store, and Gap had all opened retail locations. Dining options at the West End expanded with the opening of P.F. Chang's in June 2017; other restaurants onsite include Lubbock's first In-N-Out and Panera Bread.Health Care Covenant Health System's $450-million project, which began last year, is expected to span five to seven years. The project includes a $28-million expansion and renovation of the Joe Arrington Cancer Center, a new five-story Women's Health Center, a handful of new clinics, and a new $40-million hospital in Plainview, Texas, a town roughly 40 miles north of Lubbock. Similar to retail, Lubbock's healthcare offerings serve the growing student body at Texas Tech, as well as residents across West Texas and parts of Eastern New Mexico.Major Downtown DevelopmentsDowntown Lubbock, which encompasses the Central Business District, the Depot District, and the Arts District, serves as greater Lubbock's main economic and government hub. The Downtown Redevelopment Commission issued its Downtown Revitalization Plan in 2005, proposing a three-phase redevelopment of Downtown Lubbock. Phase I includes construction of the Buddy Holly Hall of Performing Arts & Sciences, which commenced this past April. Phase II incorporates the renovation of the Lubbock Civic Center; a $10-million renovation of the interior of the Civic Center was completed in early 2017. The final phase involves the development of a full-service, nationally branded hotel on the site of the Lubbock Memorial Civic Center. The public backing (and funding) of much of the Downtown Revitalization Plan has also spurred interest from private developers. In early 2017, the old Lubbock County Jail was acquired by a private developer who plans to turn the building into a combination of office space and residential units, according to local officials. This follows the redevelopment of the old Pioneer Hotel. The building, which was constructed in 1925 and purchased in 2005 by the McDougal Companies, reopened with luxury living, office, and retail components in 2012.Overton DistrictThe revitalization of Downtown Lubbock comes on the heels of the completion of a similar process in the Overton District, which lies just to its west. At the time, the Overton redevelopment was the largest privately funded, master-planned redevelopment undertaking in the nation, led by the local McDougal Companies. What had previously been an undesirable area is now popular with students, residents, and visitors alike, thanks to an abundance of dining, retail, and lodging options. The successful revitalization of the Overton District sets the precedent for the forthcoming redevelopment projects in Downtown Lubbock.Civic CenterThe Lubbock Memorial Civic Center, which was built to commemorate victims of a 1970 tornado at that site, primarily hosts local events and attracts only limited demand from outside the greater Lubbock area. To meet the needs of larger conventions, city officials have been researching the potential for a full-service hotel adjacent to the facility. This hotel, which represents the final phase of the Downtown Revitalization Plan, is still in the early stages of development and is being reviewed by the City. The hotel's development would be a public-private partnership, with revenues reinvested into the further revitalization of Downtown. Moreover, several officials have expressed interest in expanding the Lubbock Memorial Civic Center into a modern convention center, with the goal to attract larger events and groups to Lubbock year-round; however, no concrete plans have yet to materialize.Buddy Holly Hall of Performing Arts & SciencesThe new Buddy Holly Hall of Performing Arts & Sciences is currently under construction to the northwest of the Lubbock Memorial Civic Center; the state-of-the-art performing arts center will include a 450-seat community theatre, a 2,200-seat main performance hall, a 6,000-square-foot multipurpose room, a ballet academy, and a full-service bistro upon completion, which is scheduled for late 2019 or early 2020. The new hall will be the preeminent entertainment venue in West Texas, expected to host top touring musicians and entertainers.Hotel DevelopmentSupply growth in Lubbock across all service levels started in late 2013 and peaked in 2016. Local hotel developers have led the trend of growing supply. However, even in its initial stages, the revitalization of Downtown began to attract interest from regional developers and operators.DowntownThe recent renovation of the Lubbock Memorial Civic Center and the start of construction for the Buddy Holly Hall for Performing Arts & Sciences have generated new interest in hotel development Downtown. This follows the opening of several hotels in Downtown Lubbock in recent years, including the Courtyard by Marriott in 2014.Beyond DowntownThe area surrounding Texas Tech University continues to be attractive to area developers. The Hyatt Place in the Overton District, which opened in February 2016, is the most recent hotel to be developed around the university, with three others to open in the next few years. South of Downtown Lubbock, several properties are in the pipeline along either Loop 289 or Interstate 27/U.S. Highway 87. The growth of the West End Shopping Center has made the southwest area of the city a more prominent retail destination, as well.A Time of TransitionWhen the Overton Hotel & Conference Center opened, it marked the first new-build, full-service hotel in Lubbock since 1983, as both the Embassy Suites and the MCM Elegante were conversions of existing properties. The success of the Overton has piqued the interest of local and regional developers alike. As shown in the preceding tables, three new-build, full-service properties are in the pipeline. Furthermore, a full-service property, which had previously operated as a Radisson before being left vacant, is in the process of being converted to a DoubleTree by Hilton. This influx of new-build, nationally branded, full-service hotel properties should increase the overall, market-wide average daily rate (ADR) in Lubbock.Prior to the recent surge in hotel supply, which occurred between 2013 and 2016, market-wide ADR had hovered between $100 and $110; however, market-wide ADR has remained between $120 and $125 since 2014. According to the most recent available data, ADR is on track to stay in that higher range through 2017.New Supply AbsorptionThe sheer percentage increase in new hotel supply raises the question of how many more rooms the Lubbock lodging market is prepared to absorb. Here, it's important to note that nearly all product tiers and types are represented in the pipeline of new hotel supply. In addition, each major brand has several products in the pipeline represented throughout the city, so the benefit of any individual brand affiliation, both existing and proposed, could be diluted over the next few years. Finally, the incoming supply follows several years of similar increases. These conditions point to an extended period of absorption, even given the expected increases in demand generation from revitalization and other projects throughout the city.The demand generated by ongoing commercial and healthcare growth throughout Lubbock should help offset the influx of hotel supply. Furthermore, revitalization efforts in the downtown core, specifically the completion of the Buddy Holly Hall of Performing Arts & Sciences and recent improvements to the Lubbock Memorial Civic Center, will produce demand that had not previously existed in the market.ConclusionThere's no doubt that Lubbock's hotel market is entering a new era. Commercial and governmental efforts have spurred growth across multiple economic sectors, and this growth, in turn, has led to a boom in the development of new hotels. The absorption of the new supply should prove manageable--and ultimately beneficial to metrics such as average rate--in the market. Hence, Lubbock's hotel market looks to not only stand on solid ground, but be poised for significant expansion over the next several years.
HVS · 7 December 2017
Millennials Making WavesStatistics from Mintel show 83% of millennials took a leisure trip during 2016, compared with only 75% of all U.S. consumers. They are also spending more on vacations than in previous years, with almost 25% expressing their interest in using "economy" services such as shared accommodations. This makes millennials a major target audience, who prefer to travel affordably without the extra cost of unnecessary frills.The primary factors driving this change in demand are:Highly educated and more experienced travelers, who avoid generic brand experiences and "sameness."The proliferation of digital content, particularly social media, which promotes the value of unique experiences delivered by authentic, hyper-local and destination-specific travel.Price is a huge purchasing factor, which leads travelers to seek out cost efficiencies wherever possible.With the disruption caused by the sharing economy (e.g. AirBnB) and the ongoing popularity of immersive experiences--evident in the excitement surrounding virtual reality and 3D films--hotel brands have no choice but to look for new ways to enthrall the traveler.A Shift in PhilosophyThe opportunity to have hyper-local experiences specific to a destination is a significant factor in the popularity of accommodation options. Guests want to interact with the local community and experience a sense of belonging.Many lifestyle hotel brands have realized this and incorporate it into their offerings, with restaurants, bars and even lobbies targeting local residents as much as travelers. In the world we live in, however, these attractions need tempering with assurances of relative personal safety.Experiences backed by the reputation of an established hotel brand therefore offer a higher level of confidence for travelers, which is one reason the rise of shared accommodations has not really affected the hotel industry.The New RealitySo, what will be next and what is the future for the lifestyle hotel concept? I believe it's a mix of personalization and simplicity, with a healthy dose of technology.Travelers no longer want the most popular option, they want the one that's right for them. Oftentimes, this means clearing out the clutter and giving guests a downsized experience that enables them to simply lie on a beach for 10 days. Too many entertainment options can make a trip "touristy" and impersonal, so scaling back on the commercial activities (and their costs) could be a winning formula.Building relationships with local (vetted) tour operators who are confidently recommended may be a better option than organized excursions or activities. The ability to browse or search for activities on a mobile device using an app over free WIFI is far more effective with this target market than brochures on the front desk.The Dawn of DataThe collection and mining of data, of course, is going to be the pivot on which the market turns. With most hotels now using electronic systems for almost everything, gathering information on consumer preferences has never been easier. The hotel industry has been slow to embrace big data, however, and that needs to change--fast! Artificial intelligence will enable brands to personalize their offering more fully, often without the need for human intervention. Lifestyle's Long-Term ProspectsGeneral consensus in the travel industry tells us that whatever the new trend towards authentic experiences may end up being called, it is here to stay. Building connections with the community is as important as having an interactive, social lobby area. Hotels are no longer simply a gateway to a destination, or merely a place for travelers to lay their heads. Navigating between achieving simplicity and offering a personalized, immersive experience will be challenging for brands, but with lifestyle hotels already comfortable with "being different" from traditional brands, this segment is perfectly poised to become ground zero for future travel.  Source: Lightspeed GMI/Mintel Marketing to Millennials - U.S., May 2016
HVS · 6 December 2017
Area DevelopmentsThe first phase of a multibillion-dollar development in Downtown Tampa officially broke ground in September 2017 with the Morsani College of Medicine and Heart Institute, an urban medical school. The project will include the redevelopment of several vacant lots, as well as the construction of a 500-room convention hotel (including 75,000 square feet of banquet space) near the Amalie Arena. Additional components of this development include corporate headquarters, condominiums and apartments, Class-A office space, and a boutique hotel, as well as shops and restaurants. Additionally, the reconfiguration of a portion of Channelside Bay Plaza, which began in October 2017, aims to open the pedestrian walkways between the plaza and neighboring attractions, such as the Florida Aquarium and Amalie Arena; this portion of the master-planned development will be known as Water Street. Furthermore, changes to the roadways and sidewalks, which are already underway, will promote a more walkable Central Business District. The initial phase of the project, led by Strategic Property Partners, is expected to deliver to market in 2020, with subsequent phases delivering through 2026. Hillsborough County officials are in talks with the Tampa Bay Rays to relocate its home field from across the bay in St. Petersburg to Tampa. The County Commissioner announced in October 2017 that they have reached an agreement with land owners in the Ybor City District to gain control of approximately 14 acres of land on which the ballpark would be located. Although Tampa is a strong contender to win the site selection for the Major League Baseball team, other locations in Pinellas County, including a redevelopment of the Tropicana Field site, are also under consideration. An agreement made in 2016 between the City of St. Petersburg and the Tampa Bay Rays allows the team three years to shop around for a new home field. That deal reportedly runs out in January 2019, although the team is expected to make a decision favoring the Ybor City site by the end of 2018. In October 2016, Johnson & Johnson opened a new Global Service Center in North Tampa. The 88,500-square-foot facility opened with nearly 250 employees; it is anticipated to bring another 300 employees to the market by 2020. Tampa International Airport is undergoing a bevy of expansion projects and upgrades, geared toward accommodating increased travel through the region well into the future. A $2.5-billion master plan was approved in April 2013 for the airport. The first phase of this plan, which will include the construction of a $417-million, 2.6-million-square-foot consolidated rental-car facility; a 1.4-mile automated people mover; and an expansion of the Main Terminal is scheduled for completion in 2018. A Hard Rock Cafe and a P.F. Chang's Bistro were added to the main terminal (pre-security) in August 2016. An additional 63 concessions will be open by December 2017, 32 of which will represent food-and-beverage establishments, and 31 of which will feature retail operations. Additional changes will include the expansion of the current terminals to accommodate an increased number of international travelers; the development of additional commercial, retail, restaurant, and hotel space; and the construction of a new air-traffic-control tower. In 2016, passenger traffic almost surpassed 19 million, a level not reached since 2007, and data for 2017 reflect continued growth in passenger traffic.Major IndustriesThe greater Tampa area benefits from diverse economic drivers, including finance, government/military, and tourism and leisure, and area universities support the market by providing an educated workforce. This market has benefited from the distribution of stimulus funds, which have paved the way for construction projects such as the $421-million Selmon Expressway/Interstate 4 connector project and improvements at the airport. Completed in 2014, the connector features dedicated exit/entry lanes to the Port of Tampa, which officials report is critical to the expansion and competitiveness of the Port's container trade and cruise ship businesses. One of the largest employers for the market is the MacDill Air Force Base, home of the 6th Air Mobility Wing and 53 mission partners, including United States Central Command and United States Special Operations Command. MacDill's diverse missions and global responsibilities place it on the cutting edge of the Air Force's transformation. According to base officials, MacDill has an estimated annual economic impact of $5 billion on the greater Tampa area and employs roughly 18,000 personnel. Tampa draws over 20 million tourists annually, the majority of which are domestic visitors, resulting in an annual economic impact of nearly $6 billion. Major attractions in the area include Amalie Arena, Raymond James Stadium, and the numerous beaches in St. Petersburg and Clearwater, as well as the Busch Gardens and Adventure Island theme parks. Moreover, the Tampa Bay area is home to franchises in the MLB, NHL, and NFL. In October 2017, the NFL gave the final approval for Tampa to host Super Bowl LV in 2021, after the originally selected venue in Los Angeles reported delays to the opening of its venue.Meetings and ConventionsThe primary meeting and event venue serving the Tampa-St. Petersburg-Clearwater area is the Tampa Convention Center, located in Downtown Tampa. The Center's statistics from 2008 through 2016 are illustrated below. In 2012 (a peak year for hotel room nights generated by the Center), Tampa hosted the Republican National Convention, accounting for a large number of attendees that year. According to officials at Visit Tampa Bay, 2016 attendance at the Tampa Convention Center was bolstered by several large-scale events, including the National Baptist Convention's National Baptist Congress, International Shriners 2016 Imperial Session, AEAONMS Prince Hall Shriners 2016 Imperial Session, Varsity Spirit NCA Dance 2016 Summit, and NCAA Frozen Four Championship. Most recently, Tampa hosted the College Football National Championship in January 2017.Existing Hotel SupplyOf the approximately 17,700 hotel rooms in Tampa proper, roughly 92% belong to branded properties, with the remaining 8% operated independently. Of the 16,400 branded rooms, Marriott International currently has 33% of the market share, while Hilton Inc. operates approximately 24% of the market share. Additionally, Wyndham Worldwide, InterContinental Hotels Group (IHG), and Choice Hotels International each represent a notable portion of the branded rooms in the market, ranging between 7% and 10% market share.New Hotel SupplyMost of the current hotel development in the city is concentrated in and around Downtown Tampa and the surrounding submarkets. Nearly 1,400 rooms are in various stages of development. The Westshore/Airport market in South Tampa closely follows, with approximately 1,300 rooms under development. Other areas of Tampa, such as Wesley Chapel and Citrus Park, are in the process of developing a number of limited- and select-service hotels. Additionally, the DoubleTree by Hilton Tampa Airport - Westshore is expected to be converted from a hotel to a transportation hub affiliated with Tampa International Airport; according to city officials, the conversion is anticipated to take place within the next five to seven years.ConclusionTampa remains among the most cost-efficient places to live and do business in the nation, and the greater MSA contains one of the largest financial-services clusters and overall largest office-space communities in Florida. The government/military sector also continues to be one of the region's major employers, which contributes substantially to the local economy. Development continues in Downtown Tampa; other areas of growth include the neighborhoods surrounding the University of South Florida, as well as the Westshore area. Greater Tampa is home to a myriad of scenic beaches, Busch Gardens Tampa Bay, and the Port of Tampa, a launching point for various cruise-ship operators, which all boost visitation. The overall outlook for Tampa is optimistic due to the abundance of projects occurring throughout the area. Furthermore, Hillsborough County is fast approaching the possibility of being declared a "high-impact tourism" destination, meaning that it generates nearly $30 million per year in bed tax. Once it reaches the $30-million mark, expected to occur by the end of 2017, the County will be eligible to increase the bed tax from its current 5% to 6%.
HVS ·30 November 2017
Capitalisation rates for fixed income prime hotel investments such as lease contracts have reached sub 5%, according to a report from property experts HVS Hodges Ward Elliott. The number of investors buying into leased hotels has also trebled since 2009 as the asset class has become an increasingly attractive investment target for institutional investors. While the likes of Marriott, Hilton, IHG and Accor have moved away from lease contracts in the past, operators such as Deutsche Hospitality (formerly Steigenberger), Movenpick Hotels & Resorts and Dalata Hotel Group are continuing to opt for lease deals. Leases remain an attractive operating format in Europe for many brands, particularly in the budget sector with operators such as Premier Inn in the UK or Motel One in Germany most commonly seen to sign lease contracts due to their low risk operating model enabling them to take on long-term, index-linked fixed leases, commented report author Peter Szabo, associate at HVS HWE. They are an effective way to separate the risk associated with hotel operations and real estate ownership - and the new-found popularity of leases now makes commercial sense for both developers and long-term owners, particularly in this economic cycle. In addition a number of more upscale operators such as CitizenM and 25hours hotels, perhaps with a long-term view of expanding into management contracts, are increasingly taking on leases as a way to initially prove their concept. The report details that the current economy supports fixed-income hotel investments, so there has never been a better time for investors and developers to sign lease contracts. Not only are hotels with leases particularly attractive to institutional investors, they provide a low exit risk for developers. The re-emergence of hotel leases is also likely to lead investors to considering alternative lease-based investments such as those outside the budget sector or turnover-based rent structures as well as the emergence of permutations such as sandwich and ground leases. Operators' willingness to commit to long-term indexed lease agreements and investors' readiness to buy as well as forward-fund hotel projects has enabled the fixed-income hotel market to become far more commoditised in this cycle than ever before, added Szabo. While hotels being accepted as an asset class of their own has benefited the hotel industry, investors and developers should keep in mind that hotels are ultimately trading assets and well-timed investment decisions must be supported by professional advice when it comes to lease term negotiations, rent coverage and the hotel's income generating ability. Download a copy of the full report here www.hvs.com.