Industry Update
Opinion Article26 January 2015

Steady Cap Rates Support Strong Hotel Value Gains in the USA

Hotel values reached new peak levels in 2014, fueled by stellar hotel performance, and the availability and low cost of capital. Capitalization rates held steady as competition for quality assets remained strong.

By Suzanne R. Mellen, Senior Managing Director - Practice Leader, San Francisco at HVS

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Hotel values reached new peak levels in 2014, fueled by stellar hotel performance, and the availability and low cost of capital. Capitalization rates held steady as competition for quality assets remained strong. This article discusses these forces and presents data illustrating these trends.

The strong performance of hotel assets continues to attract capital to our industry. Hotel values reached new peak levels and capitalization rates remained steady in 2014, fueled by hearty net income increases and a plethora of low cost, yet still disciplined, capital. This article, which is published biennially1, discusses trends in hotel capitalization rates and provides an outlook for 2015.

Hotel transaction activity was very robust over the past year, with total volume increasing 22% over that of 2013 based on preliminary data for hotels that sold at a price of $2.5 million and above, as reported by Real Capital Analytics (RCA). Total volume reached $30 billion, just $2 billion shy of the prior peak volume levels achieved in 2006 and 2007.

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Steady Cap Rates Support Strong Hotel Value Gains in the USA

Hotel values reached new peak levels in 2014, fueled by stellar hotel performance, and the availability and low cost of capital. Capitalization rates held steady as competition for quality assets remained strong.
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