Jones Lang LaSalle Hotels has released its Hotel Intelligence New York report that cites hotel deal volume in Manhattan is expected to range from $1.9 billion to $2.4 billion in 2011. Manhattan is the most active hotel transaction market in the U.S.
“Hotel transaction levels in Manhattan totaled nearly $12 billion over the past decade, exceeding $1 billion in 2010 alone,” says Arthur Adler, managing director and CEO-Americas for Jones Lang LaSalle Hotels. “In 2011, we expect hotel deal volume to increase by 90 to 130 percent over last year’s levels.”
The firm’s projection comprises the estimated transaction value of properties currently on the market that are expected to transact during the course of the year. The significant increase in transaction volume will be driven by the dramatic recovery in RevPAR, continued improvement in the debt markets, investors’ intention to sell assets before the 2007-2012 loan terms expire, and currency movements.
“REITs will continue to be active buyers because their cost of capital is very competitive relative to buyers who rely on leverage,” Adler notes. “Foreign investors, particularly investors from the Middle East and Asia, will also likely be active, seeking to establish a foothold in the market. Brands are also apt to make selective investments in 2011 and beyond to establish or increase their presence or to reposition their properties.”
Market fundamentals are playing a big role in the pickup in hotel transactions. Manhattan hotels posted the highest growth rates of any major U.S. market in 2010. “Benefiting from increased demand, supply absorption, and a healthier economic environment, upper-upscale and luxury hotels in Manhattan are expected to achieve RevPAR growth of 10 to12 percent in 2011 over 2010 levels,” says Jeffrey Davis, executive vice president for Jones Lang LaSalle Hotels. “Since occupancy rates are at or near their peak levels, the RevPAR increase will be driven by ADR growth.”
During 2010, approximately 27 new hotels (across all grades) opened in Manhattan, spanning nearly 5,600 rooms-well above long-term average annual increases, as a backlog of inventory that had been conceptualized during the peak years came online. Notwithstanding the dramatic increase in supply, occupancy rates increased during 2010, indicating that all of the new supply was quickly absorbed in to the market.
The city’s supply pipeline is now shrinking. “The number of hotel openings in 2011 is expected to decrease to 13 properties, encompassing approximately 2,900 rooms. For 2012, our analysis identified an additional seven properties due to open spanning 1,200 rooms,” says Davis.
New York’s market dynamics bode well for the near- and long-term outlook for industry fundamentals, particularly as higher-rated corporate and corporate group demand returns. Manhattan will remain the top U.S. hotel investment market, attracting significant attention from domestic and off-shore buyers who want to have a foothold in this key gateway market.
