According to Director at Smith Travel Research’s Carter Wilson there are 6 points to consider when considering developing a new hotel. If a project were to meet all 6 of these criteria then there would be the perfect storm for developers and investors. He shared his data and the 2015 Hotel Data Conference.
Demand in the market is ripe for growth if it is at 75% or greater. Breakeven occupancy has been shown to be at 52% as a general rule of thumb. Entering into a low occupancy market can be at your own peril.
Wilson prefers to see consistent growth of 3% over a 5 year period. Consistent growth shows a market can continue to absorb new supply and grow rates.
Room Night Sellouts (30 or more days)
When a market sells out 30 or more days a year it is a clear indication that the market needs new supply to accommodate demand. 30 or more days per year is conservative and I would say is the least important requirement on his list. A market sellout is considered a market occupancy above 95%.
Active Pipeline Under 10%
According to HVS’s founder, Steve Rushmore, new supply is the greatest risk to hotel value. A large market growing 10% represents a substantial increase in size. It is imperative that if this number is above 10% there are other indications that the future market that the hotel will be built into is attracting more demand. Some examples of this: new convention centers, large attractions, etc.
Supply Absorption Over 2%
A history of absorbing new supply over a 5 year period.
Other Factors Not Considered
Factors that are not considered include wages and salaries, cost of land, taxes, corporate landscape, supply entering the market shortly after you, natural disaster and many other risk factors. To be sure, we always recommend contacting us about completing a feasibility study for your potential hotel project.
The Perfect 8
Los Angeles Airport, CA
San Diego Sea World/Old Town
San Francisco Airport, CA
San Francisco Area, CA
San Jose Northwest/Palo Alto, CA
There is a great deal of additional markets to consider in the report below along with some compelling data. Join to take a look at the complete report below: