The U.S. Federal government General Services Administration’s recent increase in the minimum lodging per diem rate from $70 to $77 should positively influence future average daily room rates in many areas. That announcement is good news for U.S. hotel values, as well.

Research conducted at Penn State has consistently shown that average daily rates are an excellent predictor of hotel sales transaction prices. In fact, we’ve found that ADRs are a superior predictor of sale prices than even bottom-line profit, i.e., net operating income or NOI.

NOI is always important, but the reason it has a weaker correlation with sale price than ADR appears to be that hotel purchasers usually expect to bring their own cost structure and ratios into a newly acquired property. Although past costs matter, they matter less than past top-line performance, at least in terms of hotel sale prices.

The bottom line in this case is that the GSA’s increase in the base lodging per diem is expected to have an overall positive effect on average hotel values, particularly in suburban and rural markets relying on federal travelers. On the other hand, in many urban markets, the effect is anticipated to be less positive or even negative as federal lodging per diems have been lowered in 310 of the 378 urban areas. New York City’s per diem has been particularly hit hard, dropping from $340 to $269, surprisingly at a time when New York has been one of the few cities recording durable ADR increases.

One good thing is that urban, “non-standard” per diems are reviewed and can change annually, so if market ADRs are increasing next year as is generally expected, non-standard per diems can increase, as well. The minimum, or standard per diem of $77, which applies in about 2,600 U.S. counties, is expected to stay in place for three years from the start of Federal Fiscal Year 2011, which began Oct. 1.

Along with the Federal per diem changes, I expect hotel values to be affected by anticipated continued gradual growth in business investment, employment, consumer confidence and lodging demand, along with relatively low levels of new hotel development. In concert with those factors, the Penn State Index of U.S. Hotel Values continues to estimate that 2010 represents the low point in hotel values, as it has projected for a couple years now.

Overall, hotel values are expected to grow on average by 7.5 percent in 2011. Luxury hotel values are expected to grow by approximately $19,000 per room next year, a significant increase, but still bringing values nowhere near the peak of 2007.

Upper upscale, upscale, midscale, and economy hotels are all expected to register healthy increases in value next year, with economy hotels expected to record a particularly notable 12.2-percent increase. Again, however, these values are all expected to be below their 2007 peaks. While at this stage, it isn’t possible to project 2012 hotel values with any acceptable degree of confidence, current trends suggest the potential exists for significant increases in 2012.

John W. O’Neill, MAI, CHE, Ph.D., is managing director of Hospitality Advisory Services, LLC, and associate professor in the School of Hospitality Management at The Pennsylvania State University. He can be reached at jwo3@psu.eduor 814-863-8984.