WHY U.S. SECONDARY MARKETS?
The hotel investment world has changed. Secondary U.S. hotel markets now represent the greatest investment opportunities in the sector.
The U.S. hotel industry continues to achieve strong performance following years of record occupancy levels and profit margins. However, the country’s largest hotel markets are moderating due to the pressures of increasing competition, a stronger dollar and higher costs. As a result, traditionally overlooked secondary markets now represent the industry’s greatest opportunities for performance growth.
While insulated from several challenges facing hotels in U.S. gateway destinations, secondary hotel markets can often be more complex for investors to navigate. Success in these markets requires strong local knowledge, on-the-ground insights and the right combination of asset management and operations expertise to maximize returns and long-term real estate value.
WHY PREMIUM-BRANDED, SELECT-SERVICE HOTELS?
Based on their inherent operating and competitive advantages, select-service hotels now comprise an estimated 89% of all U.S. hotel projects under construction, according to the December 2016 U.S. hotel pipeline report from STR.
In recent research from CBRE Hotels, select-service hotels achieved a gross operating profit (GOP) margin of 44.2% of total operating revenue, besting the 37.5% average GOP margin for all properties in the survey.
The same study found that select-service hotels minimize labour costs, contributing to the segment’s profitability. The combined costs of salaries, wages, and benefits at select-service hotels amounted to 22.6% of total operating revenue, or $8,109 per available room (PAR), while the same labour costs for other properties totaled 31.6% of operating revenue, and $22,224 PAR.