OUTLOOK 2016 Rachel J. Roginsky, ISHC rroginsky@pinnacle-advisory.com 164 Canal Street Boston, MA 02114 ~ 617/722-9916 www.pinnacle-advisory.com
U.S. Occupancy 2000 2016(P) 68% 66% 66.1% 65.3% 64% 62% 60% 58% 64% 60% 59% 59% 61% 63% 63% 63% 60% 58% 60% 61% 62% 64% 56% 54% 55% 52% 50% Source: Smith Travel Research
U.S. Average Daily Rate 2000-2016(P) $140.00 $130.00 $127.39 $120.00 $121.32 $115.32 $110.00 $100.00 $90.00 $80.00 $85.24 $84.45 $86.39 $84.85 $82.94 $107.30 $104.26 $97.98 $98.17 $91.06 $110.30 $106.25 $98.08 $101.64 $70.00 $60.00 Source: Smith Travel Research
U.S. RevPAR 2000 2016(P) $90.00 $85.00 $80.00 $75.00 $83.78 $74.28 $79.18 $70.00 $65.79 $68.58 $65.00 $60.00 $62.01 $64.81 $61.09 $65.17 $55.00 $50.00 $54.30 $50.74 $49.99 $49.10 $53.04 $57.46 $53.70 $56.40 $45.00 Source: Smith Travel Research
U.S. RevPAR Percent Change 2000 2016(P) 10.0% 5.0% 6.1% 8.0% 8.4% 7.9% 6.1% 5.0% 8.3% 6.7% 5.4% 8.3% 6.6% 5.8% 0.0% -1.5% -1.8% -1.5% -5.0% -6.6% -10.0% -15.0% -20.0% -17.1% Source: Smith Travel Research
Boston/Cambridge vs. Top US Markets 2014 Occupancy ADR US 64.4% $115.32 Boston MSA 75.3% $176.95 Boston/Cambridge** 81.5% $238.63 Occupancy ADR 86.0% 84.0% 84.8% 84.4% 84.1% $300.00 $250.00 $263.45 82.0% $200.00 $221.18 $207.81 $185.12 80.0% 78.0% 78.8% 78.3% $150.00 $100.00 $147.28 76.0% $50.00 74.0% New York, NY Oahu, HI San Francisco, CA Los Angeles, CA Miami, FL $0.00 New York, NY Oahu, HI San Francisco, CA Miami, FL Los Angeles, CA All data points represent MSA s and the source is STR. **The Boston/Cambridge data represents the City only and the source is Pinnacle Perspective.
NEW SUPPLY Total number of hotels in the STR active pipeline as of May 2015 was up 11.7% compared with the same time the prior year. This equates to 3,509 projects with 425,896 rooms. This includes hotels In Construction, Final Planning, and Planning. Upscale and Upper Midscale chains dominate overall construction activity. New York City has the largest number of rooms under construction with 13,300 rooms which represents about 10% of the US total. Long term (20 year) average growth rate for new supply is 1.7% CAGR. In 2014, US hotel supply increased.9%. YTD May 2015, new supply is up 1.0%.
TAKEAWAYS Industry fundamentals remain solid. The US Lodging market has the highest room demand ever as well as highest annualized occupancy. Supply growth is on the rise (1.3%(P) in 2015). By 2017 supply growth may exceed long term average. Demand growth continues to outpace supply and remains reasonably healthy. ADR growth continues to be the driver of RevPAR growth (5.2% in 2015 and 5.0% in 2016). Note that long term ADR growth is approximately 2.9%. RevPAR forecasts are positive: 6.6% in 2015 and 5.8% in 2016. Barring an economic downturn or unforeseen factors, the lodging market will continue in the up cycle and many forecasters expect this trend to continue into 2017.
Suburban Boston Occupancy 2000-2014 80% 75% 70% 65% 60% 55% 73.3% 70.8% 68.0% 66.6% 66.7% 62.8% 63.5% 61.3% 60.9% 61.0% 58.3% 59.5% 58.4% 56.2% 54.8% 50% 45% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Smith Travel Research (PAG defined area)
Suburban Boston Average Daily Rate 2000-2014 $130.00 $120.00 $110.00 $100.00 $90.00 $107.73 $105.13 $94.68 $90.76 $92.31 $96.16 $100.94 $108.14 $105.96 $104.07 $98.46 $98.49 $111.03 $123.10 $115.65 $80.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Smith Travel Research (PAG defined area)
Suburban Boston RevPAR 2000-2014 $100.00 $90.00 $87.14 $80.00 $70.00 $60.00 $50.00 $79.31 $65.11 $55.70 $49.76 $53.87 $57.26 $51.42 $66.50 $65.99 $55.33 $62.49 $69.30 $73.98 $78.61 $40.00 $30.00 $20.00 $10.00 $- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Smith Travel Research (PAG defined area)
Suburban Boston Supply and Demand 2000-2014 11,000,000 10.3 Mil. 10.4 Mil. 10,000,000 8.9 Mil. 9,000,000 0.1% CAGR 8,000,000 7,000,000 6,000,000 6.6 Mil. 6.5 Mil. 4.9% CAGR 7.4 Mil. 5,000,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Supply Demand Source: Smith Travel Research (PAG defined area)
Suburban Boston Occupancy YTD May 2011-2015 68.0% 66.0% 66.5% 64.0% 64.1% 62.0% 60.0% 59.0% 60.3% 60.4% 58.0% 56.0% 54.0% 2011 2012 2013 2014 2015 Source: Smith Travel Research (PAG defined area)
Suburban Boston Average Daily Rate YTD May 2011-2015 $140.00 $120.00 $100.00 $98.66 $106.19 $110.17 $116.46 $122.43 $80.00 $60.00 $40.00 $20.00 $- 7.6% 3.7% 5.7% 5.1% 2011 2012 2013 2014 2015 Source: Smith Travel Research (PAG defined area)
Suburban Boston RevPAR YTD May 2011-2015 $90.00 $80.00 $74.59 $81.47 $70.00 $60.00 $58.23 $64.01 $66.59 $50.00 $40.00 $30.00 $20.00 $10.00 $- 9.9% 4.0% 12.1% 9.2% 2011 2012 2013 2014 2015 Source: Smith Travel Research (PAG defined area)
Suburban Boston Supply Changes 2015-2016 2015 130-room Homewood Suites Brookline (December) 85-room Holiday Inn Express Norwood (May) 140-room TownPlace Suites Chelsea (March) 85-room TownPlace Suites Wareham (April) 2016 170-room Residence Inn Burlington (July) 150-room Residence Inn Watertown (November) 152-room AC Hotel-Marriott Medford (January) 115-room Courtyard Littleton (June) 100-room Hampton Inn & Suites Stoughton (November) 105-room Hampton Inn Westborough (October) 105-room Homewood Suites Marlborough (November) 160-room Hilton Garden Inn Marlborough (September 102-room Home2 Watertown (September) 92-room Hampton Inn Amesbury (September) 115-room Staybridge Suites Quincy (December) 114-room Staybridge Suites Waltham (December) 128-room Holiday Inn Chelsea (April) 152-room Homewood Suites Chelsea (1 st Quarter) Source: Pinnacle Advisory Group
Suburban Boston Office and R&D Trends Square Feet Supply Vacancy Inner Suburbs 5.5 Million 11.2% Route 128 76.9 Million 15.0% Route 495 49.3 Million 22.0% Source: As of March 31, 2015 (Colliers)
Suburban office vacancies expected to continue to decline in 2015 and 2016. Suburban Boston Office Trends Improving market fundamentals are providing confidence to local corporations, rents are rising, and more projects are expected to get off the ground. Tighter vacancies are driving up rents and pushing demand further out to I495. Continued growth in technology and biotech industries is fueling the recovery in the office market. The Suburban office and R&D markets recorded nearly 1.4 million SF of absorption in 1 st Quarter 2015. This represents 6 quarters of positive absorption. Source: Pinnacle Advisory Group
Suburban Boston Lodging Demand 2015-2016 The greater Boston real estate market will benefit from solid regional growth, below average unemployment rate and growing optimism. Given continued economic improvements, Leisure Demand will show moderate improvement. This segment continues to be rate sensitive, but with more capacity issues, rate growth above inflation is expected. Strong improvements in the local office markets allow for strong weekday demand. Capacity is driving rate improvements throughout the suburban market. Stronger growth in the inner suburbs and 128; positive momentum in outer suburbs (I-495). Group demand is on the upswing and most markets are seeing moderate levels of improvement. Capacity in peak periods, coupled with higher room rates in Boston, will continue to drive rate increases above inflation. New supply will negatively impact occupancy in some markets. Source: Pinnacle Advisory Group
Suburban Boston Projections 2015 2014 2015 % Change Occupancy 70.8% 72.5% 2.4% Average Rate $123.10 $129.50 5.2% RevPAR $87.14 $93.89 7.7% Source: Pinnacle Advisory Group
Suburban Boston Projections 2016 2015 2016 % Change Occupancy 72.5% 71.5% (1.4)% Average Rate $129.50 $134.68 4.0% RevPAR $93.89 $96.30 2.6% Source: Pinnacle Advisory Group
Boston / Cambridge Occupancy 2000-2014 82% 81.5% 80% 77% 79% 74% 75% 76% 77% 75% 76% 77% 78% 72% 72% 69% 70% 71% 67% 62% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Pinnacle Advisory Group
Boston / Cambridge ADR 2000-2014 $240.00 $238.63 $220.00 $200.00 $180.00 $199.74 $181.34 $208.89 $194.56 $175.20 $213.94 $215.80 $198.50 $187.10 $190.02 $219.07 $160.00 $165.04 $165.98 $154.01 $140.00 $120.00 $100.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Pinnacle Advisory Group
Boston / Cambridge RevPAR 2000-2014 $190.00 $194.60 $176.42 $170.00 $150.00 $156.80 $147.87 $160.85 $159.54 $168.74 $152.22 $144.45 $130.00 $125.85 $119.16 $122.66 $131.22 $132.56 $110.00 $108.12 $90.00 $70.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Pinnacle Advisory Group
Boston / Cambridge Supply and Demand 2000-2014 8,000,000 7,500,000 7,000,000 6,500,000 2000 to 2014 CAGR Supply: 2.2% Demand: 2.3% 21,900 Daily Rooms Available 2009 to 2014 CAGR Supply: 0.4% Demand: 3.2% 6,000,000 5,500,000 5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 Demand Supply Source: Pinnacle Advisory Group
Boston / Cambridge Occupancy YTD May 2011-2015 80.0% 78.0% 76.7% 77.7% 76.0% 75.5% 74.0% 73.6% 72.0% 71.1% 70.0% 68.0% 66.0% 2011 2012 2013 2014 2015 Source: Pinnacle Advisory Group
Boston / Cambridge ADR YTD May 2011-2015 $240.00 $230.00 $231.81 $220.00 $217.01 $210.00 $200.00 $200.00 $199.98 $190.00 $180.00 $182.88 9.4% 0.0% 8.5% 6.8% $170.00 $160.00 2011 2012 2013 2014 2015 Source: Pinnacle Advisory Group
Boston / Cambridge RevPAR May 2011-2015 $190.00 $180.00 $180.12 $170.00 $166.45 $160.00 $150.00 $147.20 $150.98 $140.00 $130.00 $130.03 $120.00 $110.00 13.2% 2.6% 10.2% 8.1% $100.00 $90.00 2011 2012 2013 2014 2015 Source: Pinnacle Advisory Group
Boston / Cambridge Change in RevPAR 2008 YTD May 2015 15.0% 10.0% 11.3% 13.3% 10.4% 8.1% 5.0% 5.4% 1.7% 0.0% -5.0% 2008 2009 2010 2011 2012 2013 2014 YTD 2015-2.0% -10.0% -15.0% -16.9% -20.0% Source: Pinnacle Advisory Group
Airport/Seaport Back Bay Cambridge Downtown South Boston Boston / Cambridge Change in Performance by Market Area YTD May 2015 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% Source: Pinnacle Advisory Group Occupancy Avg Rate RevPAR
Boston/Cambridge Supply Changes 2015/2016 2015: 123-room Fairfield Inn and Suites Cambridge (March) 136-room Hotel Envoy, Autograph Collection (June) 178-room Hilton Garden Inn East Boston (July) 75-room Porter Square Hotel (October) 238-room Godfrey Hotel (October) 96-room Hotel Commonwealth Expansion (December) TOTAL: 846 Rooms 2016: 180-room Element (November) 330-room Aloft (April) 150-room AC Hotel Cambridge/Alewife (July) TOTAL: 660 Rooms Source: Pinnacle Advisory Group
Boston s Future New Supply New Rooms Supply by Status Status Prjs % Rms % Under Construction 6 19% 1,393 23% BRA Approved * 16 52% 2,758 45% Under Review / Letter of Intent 9 29% 1,913 32% TOTAL 31 6,064 * Includes two approved project with roomcounts not yet determined. Does not include rumored/preliminary projects. Projects provided by Boston Redevelopment Authority as of July 7, 2015 Compiled by Pinnacle Advisory Group From 2014 supply level of approximately 21,900 rooms, the projects which are under construction represent a 6.4% increase to rooms supply Adding those that have BRA approval, increases supply 19.0% Source: Pinnacle Advisory Group
Boston/Cambridge Demand Factors Boston Unemployment Logan Stat s Total Passengers May 2014 5.4% YTD May 2014 12.1 M May 2015 4.3% YTD May 2015 12.6 M
Boston/Cambridge Demand Factors Boston Office Market Million SF Vacancy March 2014 62.5 12.0% March 2015 63.1 10.8% Source: Colliers (March 2015)
Boston/Cambridge Demand Factors Cambridge Office Market Million SF Vacancy March 2014 20.6 13.1% March 2015 21.5 8.6% Source: Colliers (March 2015)
Source: Pinnacle Advisory Group Boston/Cambridge Office Demand Factors Boston Boston has been in expansion mode for over two years. Continued positive absorption and declining vacancies projected through 2018. Rate increases are projected for the next 24 months. Attracting more start-ups, tech focused, entrepreneurial companies. Seaport Office Market is sizzling with growth. Other major commercial developments in Downtown, Back Bay, Fenway and North Station. Cambridge Biotech and large pharmaceuticals remain a huge, powerful economic engine Lack of office space will drive rental rates especially in East Cambridge/Kendal Square Both office, lab, and R&D is at 8.6%
Boston / Cambridge Corporate Demand Trends Demand remains strong. Boston is not as dependent on International travelers as it was during the downturn, however if the dollar continues to grow stronger it could impact demand. With the increase in employment and office space absorption, corporate demand will continue to grow. Boston is less impacted by the strength of the dollar as compared to New York. Capacity constraints midweek hurt growth in corporate travel. Source: Pinnacle Advisory Group
Boston / Cambridge Group Demand Trends 2H 2015 combined Back Bay and Downtown Pace is up 4% 2016 combined Back Bay and Downtown pace is down 4% o Back Bay is down 3% o Downtown is down 6% 2016 Demand Trends o Q1 is a concern due to softer citywide calendar coupled with groups that are wary of coming to Boston in winter due to bad press from last year s storms. o Many of 2016 citywides would have been booked during downturn at discounted rates. Source: Pinnacle Advisory Group
Boston / Cambridge Leisure Demand Trends Demand remains strong. International tourism remains strong. Sporting events such as IndyCar street race and Figure Skating should have positive impact on leisure demand. Capacity constraints on weekends and during May through October hurt growth in leisure travel. Source: Pinnacle Advisory Group
Boston / Cambridge Average Rates Update Corporate Negotiated rates are expected to be up 7 to 8 percent. Group rates estimated to be up 2 percent. Retail/Leisure rates are expected to be up 9 to 12 percent. A portion of rate increases in recent years are a result of operators shifting mix in order to drive rate. As such, rate increases are driven solely by higher rates. Due to lower group rates, in 2016 the larger hotels will not experience as much rate growth as smaller, transient focused hotels. Source: Pinnacle Advisory Group
Boston / Cambridge RFP Season (2016) Most operators expect to quote rates between 9 and 11 percent and will settle to rate increases of 6 to 8 percent. Source: Pinnacle Advisory Group
Boston Cambridge Projections 2015 2014 2015 % Change Occupancy 81.5% 82% 0.6% Average Rate $238.63 $255.33 7.0% RevPAR $194.60 $209.37 7.6% Source: Pinnacle Advisory Group
Boston Cambridge Projections 2016 2015 2016 % Change Occupancy 82% 81% - 1.2% Average Rate $255.33 $275.76 8.0% RevPAR $209.37 $223.37 6.7% Source: Pinnacle Advisory Group
PINNACLE ADVISORY GROUP 164 Canal Street Floor 5 Boston, MA 02114 617/722-9916 3030 North Rocky Point Drive, Ste. 150 Tampa, FL 33067 813/350-7969 6 Town Landing Road, Falmouth, ME 04105 207/781-0922 1271 Avenue of the Americas, Ste 4300, New York, NY 10020 212/292-4824 4507 38th Street North Arlington, VA 22207 703/531-1320 567 San Nicolas Drive, Ste. 370, Newport Beach, CA 92660 949/734-6455