REPORT FROM THE U.S.—The pace of United States hotel real estate acquisitions is likely to pick up steam next year, according to Jones Lang LaSalle’s 2011 Commercial Real Estate Forecast.
“There will be a lot of acquisition interest as buyers look to take advantage of the bottom of the market,” said Lauro Ferroni, a research associate at JLL, during a media briefing Tuesday.
2010, with its expected US$6.5 billion in deal volume, could be a sign of things to come. So far, there have been 11 asset sales greater than US$100 million compared to three a year ago, Ferroni said.
Total commercial real estate transaction volume is expected to increase by 80% this year to US$92 billion, said Josh Gelormini, director of capital markets research. Transactions will go up another 30% to 40% during 2011 to US$125 billion as the U.S. economic picture continues to improve, he said.
Those numbers, however, still are way down from US$400 billion transaction volume during 2007.
The three most active transaction markets next year? New York, Boston and Washington, D.C., he said.
Improving fundamentals
Aiding the expected increase in activity are the hotel industry’s improving fundamentals. Revenue per available room is forecast by JLL to increase 5% this year and between 5% and 7% during 2011.
The overall economy will see a pick-up, too, said Ben Breslau, JLL’s director of Americas research. “2011 will be the year the private sector takes the baton and begins to drive growth,” he said.
Gross domestic product output will go up by the same 2% to 2.5% figure expected for 2010, but GDP will accelerate as the year goes on. Credit markets also are likely to ease a bit, Breslau said, but unemployment will remain high at levels of 8% to 9%.
Reduced supply
A reduction in supply is going a long way toward helping those RevPAR numbers. “New supply levels will be virtually choked off in 2011-2012,” Ferroni said.
JLL expects a 0.8% increase in the number of available rooms next year.
Public hotel owners also are shifting their business mix to include more corporate transient guests, Ferroni said. “That sets the stage for RevPAR growth in 2011.”
Recovery is strongest in coastal, international gateway cities such as New York and San Francisco. “New York … has been the greatest turnaround story,” he said.
Other highlights
What follows are other comments from the commercial real estate update:
- There will be no new office market supply through 2014.
- Office rent contraction has slowed.
- Expect to see strong office markets in gateway/port cities of Los Angeles and Seattle and challenged markets in such Midwestern cities as Cleveland and Pittsburgh.
- Consumer confidence remains depressed.
- Large retailers are trying to sublease excess space.