Mark Woodworth Senior Managing Director A CBRE COMPANY RESEARCH TRENDS

Mark WoodworthSenior Managing Director

A CBRE COMPANY

RESEARCH TRENDS

HOTEL SECTOR UPDATE – SEPTEMBER 28, 2015

Mark WoodworthSenior Managing Director

PKF Hospitality Research, a CBRE Company

The Very Good ……Will Continue

WHAT COULD DERAIL THE GOOD TIMES?

Is the economy:• Good?• Okay?• Bad?

What about a year from today?

Question:

WHAT COULD DERAIL THE GOOD TIMES?

4. Oil/Energy Price Increases

5. Over Building

1. The Economy

2. Asset Price Bubble

3. Unpredictable Demand Shock

Okay, moving to better

???

Not on the horizon

Mostly no, some yes.

?

Lessons from History:

LEADING ECONOMIC INDICATORS

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%Leading Economic Indicators (% change in the last 6 months) U.S. Hotel Demand

August 2015

Looks good for at least another six

months!

7

I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV2008 2009 2010 2011 2012 2013 2014 2015 2016

-10

-8

-6

-4

-2

0

2

4

6

8

10

-2.7%

2.0%

-1.9%

-8.2%

-5.4%

-0.5%

1.3%

3.9%

1.7%

3.9%

2.7%2.5%

-1.5%

2.9%

0.8%

4.6%

2.7%

1.9%

0.5%0.1%

1.9%

1.1%

3.0%

3.8%

-0.9%

4.6%4.3%

2.1%0.6% 3.7%

2.6%3.8%3.7%3.4%3.4%3.0%

Percent change at annual rate: Gross domestic product

(GOVERNMENT) Government consumption expenditures and gross investment

TRADE (Net exports of goods and services)

BUSINESS (Gross private domestic investment)

Lodging Demand

GDP Component Forecast

These matter the most.

THE OUTLOOK FOR HOTEL INDUSTRY DRIVERS THAT ARE MOST IMPORTANT REMAINS FAVORABLE

Source: BEA; Moody’s Analytics; PKF-HR, a CBRE Company; STR, Inc.

#2014IAC

THE VERY GOOD….9/12/2014

WILL GET EVEN BETTER

U.S. Lodging Industry Update

R. Mark [email protected]

A Year Ago

2014F 2015F 2016F 2014F 2015F 2016F

Supply 0.9% 1.3% 1.7% 0.9% 1.3% 1.7%

Demand 4.5% 2.2% 1.6% 4.5% 2.2% 1.6%

Occupancy 64.4% 65.0% 64.9% 64.4% 65.0% 64.9%

ADR 4.5% 5.7% 5.9% 4.5% 5.7% 5.9%

RevPAR 8.2% 6.7% 5.8% 8.2% 6.7% 5.8%

#2014IAC

U.S. NATIONAL FORECAST 2014-2016

Source: PKF Hospitality Research – Hotel Horizons® September –November 2014, STR, Inc.

What We Said at The Del

Record

TITLE TEXT

2014F 2015F 2016F

Supply 0.9% 1.3% 1.7%

Demand 4.5% 2.2% 1.6%

Occupancy 64.4% 65.0% 64.9%

ADR 4.5% 5.7% 5.9%

RevPAR 8.2% 6.7% 5.8%

• 2014-2016National Forecast – All U.S. Hotels

Source: PKF Hospitality Research - Hotel Horizons® September-November, 2014,2015, STR, Inc.

Forecast TodayWhat We Said at The Del

Record

TITLE TEXT

2014F 2015F 2016F 2014 2015F 2016F

Supply 0.9% 1.3% 1.7% 0.8% 1.1% 1.8%

Demand 4.5% 2.2% 1.6% 4.4% 3.3% 2.2%

Occupancy 64.4% 65.0% 64.9% 64.4% 65.8% 66.1%ADR 4.5% 5.7% 5.9% 4.5% 5.0% 5.9%

RevPAR 8.2% 6.7% 5.8% 8.2% 7.2% 6.3%


Source: PKF Hospitality Research - Hotel Horizons® September-November, 2014,2015, STR, Inc.

Forecast TodayWhat We Said at The Del

Record

HAPPY THOUGHTS

Lodging Industry is at a Record Occupancy Level• 15 Cities are at a Record Occupancy

• Many by a Substantial Amount:

Current Occupancy

Pre-Recession

Peak PremiumDenver 76.1% 65.6% 10.5%San Jose 77.7% 68.5% 9.2%San Francisco 84.7% 76.1% 8.6%Boston 76.2% 68.5% 7.7%Nashville 72.8% 66.4% 6.4%Miami 78.1% 72.5% 5.6%Seattle 76.6% 71.6% 5.0%Austin 73.7% 69.3% 4.4%

Source: STR, Inc.

MORE HAPPY THOUGHTS

Some Markets are Experiencing SignificantNew Hotel Construction (NYC, Austin, Houston).

• Most, however, are in balance.

Limited New Supply, Along with ContinuedDemand Growth, will Lead to Even GreaterRoom Rate Increases in 2016 and 2017.

• Pricing Power will Remain with Hotels.

MORE HAPPY THOUGHTS

Many Markets will Realize Big Price Increases for the Next Two Years.

Rank Market2015-2016

2016-2017

1 Oakland 11.3% 9.7%2 San Jose-Santa Cruz 9.0% 6.3%3 Atlanta 8.4% 6.3%4 Nashville 8.1% 6.4%5 Seattle 8.0% 6.4%6 Jacksonville 7.8% 5.5%7 San Francisco 7.2% 6.1%8 Boston 7.1% 4.5%9 Portland 7.0% 5.3%10 Denver 6.9% 5.1%

Forecast Change in Average Daily RateAll Upper-Price Hotels

Source: PKF Hospitality Research, a CBRE Company

MORE HAPPY THOUGHTS

Luxury Hotels Set an All-Time High Occupancy Record of 75.0% in 2014.• 2015 and 2016 will be even better!

Room Rates Increases will Exceed the Long Run Average of 4.6% this Year and Next as a Result.

MORE HAPPY THOUGHTS

Luxury Resorts are Forecast to Set anall-time High Occupancy of 71.3% this Year.• 2016 and 2017 will be even better as new construction lags demand growth.

Room Rate Increases will be well-above theLong Run Average of 2.9% this Year and Next as a Result.

TITLE TEXT

Long Run Average 2012 2013 2014 2015F 2016F

Supply 1.9% 0.4% 0.7% 0.8% 1.1% 1.8%

Demand 2.0% 2.8% 2.0% 4.4% 3.3% 2.2%

Occupancy 62.0% 61.4% 62.2% 64.4% 65.8% 66.1%ADR 3.0% 4.2% 3.9% 4.5% 5.0% 5.9%

RevPAR 3.2% 6.6% 5.2% 8.2% 7.2% 6.3%


Source: PKF Hospitality Research - Hotel Horizons® September-November, 2015, STR, Inc.

RevPAR driven by ADR Growth

Record

TITLE TEXT


Supply 4.4% -0.3% -0.1% 1.1% 0.5% 1.5%

Demand 4.9% 2.8% 1.8% 2.0% 1.2% 1.7%

Occupancy 70.0% 73.0% 74.3% 75.0% 75.5% 75.7%ADR 3.9% 4.5% 5.4% 5.3% 5.6% 6.7%

RevPAR 4.6% 7.8% 7.3% 6.2% 6.4% 7.0%

• 2014-2016National Forecast – All Luxury Hotels

Source: PKF Hospitality Research - Hotel Horizons® September-November, 2015, STR, Inc.Record

Limited Supply Growth in the Near Term

TITLE TEXT


Supply 2.2% -0.2% -0.2% 1.0% 1.1% 1.4%

Demand 2.3% 1.4% 1.3% 4.9% 3.0% 2.4%

Occupancy 66.6% 66.3% 67.3% 69.9% 71.3% 71.9%ADR 3.0% 4.8% 4.9% 3.2% 4.6% 6.8%

RevPAR 3.3% 6.6% 6.4% 7.2% 6.6% 7.8%

• 2014-2016National Forecast – All U.S. Resorts

Source: PKF Hospitality Research - Hotel Horizons® Custom Forecast September, 2015, STR, Inc.Record

Large RevPAR Increases will be Sustained

A NEW DISRUPTOR?

AIRBNB AND OTHER SHORT-TERM RENTALS

Google Trends – Search Data

0

20

40

60

80

100

120 Airbnb VRBO

Source: Google Trends; PKF Hospitality Research, a CBRE Company

AIRBNB – U.S.

Source: Insideairbnb.com (July 2015); PKF Hospitality Research, a CBRE Company

Roughly 215,000 Units available in the U.S. (July 2015)

HOW MANY ARE COMPETITIVE WITH HOTELS?

We Estimate 68% of Airbnb Units Are Competitive with U.S. Hotels

65%

35%

Entire home/apt Private room95,169 Units = 182,495 Rooms

1.9 Rooms per Unit50,651Units

233,146 Competitive Rooms in the U.S.

New

York

, N

Y

Los

An

gele

s/Lo..

.

San

Fra

ncis

co/S

...

Colo

rad

o A

rea

Au

stin

, TX

New

York

Sta

te

Riv

ers

ide/S

an

B..

.

Mia

mi/H

iale

ah

, FL

San

Die

go,

CA

Wash

ing

ton

, D

...

Bost

on

, M

A

Calif

orn

ia N

ort

h

Ch

icag

o,

IL

Orl

an

do,

FL

Seatt

le,

WA

Calif

orn

ia C

en

tra..

.

New

Orl

ean

s, L

A

Mass

ach

use

tts

...

Sacra

men

to,

CA

Port

lan

d,

OR

0

5,000

10,000

15,000

20,000

25,000Top 20 Markets

Source: Insideairbnb.com (July 2015); PKF Hospitality Research, a CBRE Company

INDUCED SUPPLY?

Source: Insideairbnb.com (July 2015); PKF Hospitality Research, a CBRE Company, STR, Inc.

INCREASING THREAT FROM AIRBNB

Competitive Airbnb Rooms as a Percent of Hotel RoomsA

ust

in, TX

Long Isl

and

Oakla

nd, C

A

Sacr

am

ento

, C

A

Mia

mi/H

iale

ah, FL

Bost

on, M

A

New

Orl

eans,

LA

Oahu Isl

and, H

I

Philadelp

hia

, P...

Charl

est

on, SC

Denver,

CO

West

Palm

Beac.

..

Salt

Lake C

ity/...

Anaheim

/Santa

...

Louis

ville

, K

Y-I

N

Orl

ando, FL

Balt

imore

, M

D

Tam

pa/S

t Pete

rs...

Pit

tsburg

h, PA

Alb

uquerq

ue, N

M

New

ark

, N

J

Cin

cinnati

, O

H-.

..

India

napolis,

IN

Houst

on, TX

Charl

ott

e, N

C-S

C

Colu

mbus,

OH

Dallas,

TX

Detr

oit

, M

I

Kansa

s C

ity, M

...

Dayto

n/S

pri

ngfi...0%

5.0%

10.0%

15.0%

20.0%

25.0%

19 Markets above 5%


DESTINATION RESORTS AND AIRBNB

Not Just Major Cities


WHERE IS THE MOST AIRBNB SUPPLY OCCURING?

Source: PKF-HR, a CBRE Company; STR, Inc.; insideairbnb.com

Miami Beach

, FL

San Francisco

Marke

t St, C

A

Palm Sprin

gs, CA

Colorado Ski Area

Miami CBD/N

orth, F

L

Hawaii (Big Is

land), HI

Oahu Area, HI

South Lake Tahoe, C

A

San Diego C

BD, CA

Maui Area, H

I

Kissim

mee West,

FL

San Diego Sea W

orld/Airp

ort, CA

Cape Cod/M

assach

usetts

SE, MA

Newport Beach

/Dana Point, C

A

Santa Barbara/Santa Maria

, CA

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000RESORT SUBMARKETS WITH THE MOST AIRBNB SUPPLY

Source: PKF-HR, a CBRE Company; STR, Inc.; insideairbnb.com

Miami Beach

, FL

San Francisco

Marke

t St, C

A

Palm Sprin

gs, CA

Colorado Ski Area

Miami CBD/N

orth, F

L

Hawaii (Big Is

land), HI

Oahu Area, HI

South Lake Tahoe, C

A

San Diego C

BD, CA

Maui Area, H

I

Kissim

mee West,

FL

San Diego Sea W

orld/Airp

ort, CA

Cape Cod/M

assach

usetts

SE, MA

Newport Beach

/Dana Point, C

A

Santa Barbara/Santa Maria

, CA

$0

$50

$100

$150

$200

$250

$300

$350

$400AVERAGE AIRBNB PRICES

WHAT RATES ARE AIRBNB PROPERTIES CHARGING?

WHERE IS THE MOST AIRBNB SUPPLY OCCURING?

Hotels & Airbnb


A Look at Miami Beach

1. The fundamentals are solid across the vast majority of markets.

2. Elevated industry growth will persist comfortably through 2017 and likely beyond.

3. High occupancy levels will provide the leverage needed to achieve large real ADR increases for the next two-three years, particularly at Resorts and Luxury Hotels.

Summary Thoughts: The Very Good……………Will Continue

1. Competition for building materials and labor will continue to present challenges for developers in most markets. Below average hotel construction will be the result for the next three years.

2. Above long run average occupancy levels will lead to strong profit growth comfortably through 2017, enough to off-set increasing labor costs.

3. It is a great time to be in the hotel business!

Summary Thoughts: The Very Good……………Will Continue

32

Thanks for Your Time

Documents

Mark Woodworth Senior Managing Director A CBRE COMPANY RESEARCH TRENDS