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Hotel Values Continue to Rise

Economic growth is expected to be modest in 2013, with Gross Domestic Product (GDP) anticipated to rise by 2.9%, but the supply of hotel guestrooms is expected to increase only 0.7% over the next year, much lower than the 1.7% to 3.1% annual increases seen from 2007 to 2009. As a result, there will be continued upward pressure on hotel market values as performance fundamentals remain relatively strong and hotels continue to be good investments in an uncertain economic environment.

Positive factors affecting hotel values include rising consumer spending (2.3% growth anticipated in 2013), increasing home values (5.6% growth anticipated), and limited, if any upward pressure on oil prices. Offsetting the positive factors is the expected continued high unemployment rate, though the expected rate of 7% to 8% would be lower than in recent years.

Hotel values are expected to register a healthy 8.7% growth rate in 2013 following an 11.8% increase in 2012. Luxury hotels are anticipated to continue to show strong value increases with an 8.9% gain in 2013 which, at $28,773 per guestroom represents the highest increase in value per room of all hotel types. Economy hotels are expected to record the greatest value percentage increase at 10.8%.

At this point, it isnít possible to project 2014 hotel values with any reasonable level of confidence until more information is available about results of the handling of the debt crises in the U.S. and abroad, but most of the positive fundamentals affecting hotel values are anticipated to continue into 2014.

John W. OíNeill, MAI, ISHC, Ph.D., is Director the School of the School of Hospitality Management at The Pennsylvania State University. He can be reached at jwo3@psu.edu or 814-863-8984.

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