Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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23 March | April | 2015 CCIM.com A rity phase of the cycle, anticipated to occur toward the end of the decade. Construction Poised to Break Out T e hotel construction pipeline struck bot- tom in 2011 with 2,753 projects and 334,712 rooms. In 2014, the pipeline experienced its f rst year of signif cant growth, rising to 3,645 projects and 460,551 rooms, a substantial 20 percent YOY growth rate that freed the pipe- line from what had been a two-year bottom- ing formation. (See Table 1.) Unlike other real estate sectors, such as office, multifamily, and industrial, hotel development has been slower to react to the improving economy. For instance, only two major markets have more than 100 projects in their pipelines: New York with 188 proj- ects and the sprawling Houston market with 148 projects. In comparison, f ve markets had more than 100 projects under development at the previous cycle's peak in 2007. Development is currently concentrated in select-ser- vice, lifestyle, and mid-mar- ket properties. T ese include Marriott's Courtyard, Resi- dence Inn, Spring Hill Suites, Town Place Suites, and Fairf eld Inn; Hilton's Garden Inn, Hampton Inn & Suites, Home2 Suites, and Homewood Suites; IHGs' Holi- day Inn and Holiday Inn Express; Starwood's Alof ; and Best Western's Plus. With the economic and f nancing envi- ronment near perfect, development of these property types is expected to gather even greater speed. T e economy is being driven by strong business activity, solid job creation, falling unemployment, lower energy prices, mild inf ation, and improved consumer con- f dence. Interest rates are low. Construction and takeout f nancing are readily available at attractive rates. The internal metrics that will signal a maturing pipeline will likely be similar to what occurred in the previous real estate cycle: a preponderance of new project announce- ments for large luxury and big-box meeting- oriented hotels located in major downtown and sub- urban locations, as well as a f ood of large hotels to be built in major resort areas. Shortly thereafter, projects exiting the construction pipeline as new hotel openings will push annual supply growth above by Patrick H. Ford As the lodging real estate cycle enters its second year of expansion, the hotel indus- try is booming. Guest room occupancy f n- ished 2014 at 64.4 percent, while revenue per room posted an astounding 9.2 per- cent year-over-year increase, according to Smith Travel Research. Average daily rate and revenue per available room are both at record highs, while hotel occupancy and room revenue reached their highest levels in more than 15 years. In 2014, guest room demand increased 4.5 percent YOY, while the growth rate for new supply was less than 1 percent. Lodg- ing Econometrics analysts noted that all 25 top markets showed occupancy, ADR, and RevPar rates up over 2013. Demand growth exceeded supply growth in all 25 markets and outpaced supply by more than 2.5 per- centage points in 20 of those markets. Just three markets registered supply growth greater than 2 percent: Denver, Nashville, Tenn., and New York. A continued uptrending of these operat- ing metrics will soon quicken the pace of new hotel construction and will also increase transaction volume and further escalate sell- ing prices. Improving metrics will encour- age real estate investment into the matu- Tieataopoon/Thinkstock