The apartment sector has dominated the national commercial real estate market for the past three years. With steadily improving occupancies and modest improvements in rents, the sector has consistently been the strongest performer. However, the hotel market seems to be taking over the top stop in the national commercial real estate market. Hotels led all other major commercial property types in terms of sales price gains both in the first quarter of 2014 and in 2013, according to data released by Real Capital Analytics, and hotel sales volume surged 27 percent in April compared to the previous year. Because hotels benefit the most from an improving economy, the sector's strength indicate that investors are trying to get in front of a good economy going forward.
Smith Travel Research, Inc. (STR) released the U.S. hotel performance data for the month of April 2014, and the industry continues to post positive results in key performance metrics. Overall, the U.S. hotel industry’s occupancy was up 3.2 percent to 65.7 percent, its average daily rate (ADR) rose 4.0 percent to $114.67, and its revenue per available (RevPAR) room increased 7.4 percent to $75.30. April was a good month for hotels, as the industry saw the highest RevPAR growth (+7.4 percent) so far this year and the strongest in the last 12 months, according to STR. In April 2013, RevPAR growth was also 7.4 percent, so this year’s growth was impressive against this tough comparable. ADR grew 4.0 percent, and has been above 3.0 percent each month since January 2011. STR expects rate growth to continue unabated for the foreseeable future. Supply growth for the month increased 0.8 percent, same as during the last two months. However, because of the strong growth in the under construction pipeline, STR expects supply will grow at a faster pace in coming months. Despite the Easter and Passover calendar shift, demand still grew 4.0 percent, which means the industry sold 3.7 million more rooms this April compared to April 2013.
As sales continue to take a dive, Office Depot recently announced plans to close 400 U.S. stores by 2016. According to an article from the Wall Street Journal, Office Depot's first-quarter sales declined 2.9% to $4.35 billion, compared with pro forma revenue a year earlier generated by the merger with OfficeMax. Office Depot posted a loss of $109 million, compared with a loss of $7 million a year earlier. The closures stem from the overlap created by last year's merger, the company said. The retailer currently has 1,900 stores in the U.S., and said that it was still determining which stores would go on the chopping block, but 150 closures are pegged for this year. Rival office-supplies retailer Staples Inc. previously detailed plans to close as many as 225 of its stores by the end of next year. Office suppliers are cutting back floor space as consumers shift their spending online and shop less for certain kinds of technology.
The annual 50-State Property Tax Comparison Study based on 2013 data, produced by The Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence, is now available. The study analyzes effective property tax rates in each state's largest city, the District of Columbia, the 50 largest U.S. cities, and one rural area in each states. Effective property tax rates measure the actual tax payment as a percentage of market value, providing a more accurate measure of the tax burden than nominal rates that may be applied to a percentage of full value because of statutory provisions or local assessment practices.
By Jerry Heaton, Senior Managing Consultant, Dallas
Good news for the hospitality industry: U.S. hotel occupancy rates will finally recover to pre-recession levels in 2014, according to the recently released March 2014 edition of PKF Hospitality Research, LLC’s (PKF) Hotel Horizons forecast report. However, many industry participants are wondering whether the level of performance is actually "good news" or not, and are concerned that an oversupply of new lodging units will become an in issue down the road. The lodging industry experienced extremely negative impacts of overdevelopment in the 1980s and 1990s, but today's property cycle presents a different scenario, according to PKF. The long-run average annual change in supply has been 2.0%., and they do not expect to see the national annual supply growth exceeding that level until 2017.
The year is off to a good start for the retail sector, investment sales volumes are up and cap rates are reaching all-time lows. According to the National Real Estate Investor (NREI), in January, the most recent month for which data is available, year-over-years sales volume in the retail sector jumped up 27 percent, to $4.6 billion. Most of the activity (57 percent) involved sales of shopping centers, but there were a few malls that traded hands as well. Due to favorable interest rates, exceptional cost of capital and high demand, many industry experts expect 2014 to be a great year for retail investment sales.
By Alan Schultz, Senior Managing Consultant / Principal, Silicon Valley
The pace of commercial real estate is improving, but it's also slowing, according to the National Association of Realtors' (NAR) quarterly forecast. NAR reports that fundamentals are still on an uptrend; and growth in commercial real estate sectors continues at a moderate pace from a very slow pace of absorption, despite job additions to the economy. Companies are hesitant when it comes to adding new space. Only slow, gradual improvement is expected for the office sector. Demand for retail space is benefiting from improved household wealth, while industrial real estate is stable with increasing international trade, which requires warehouse space, according to NAR. Of course, the apartment market fundamentals are the strongest, as nearly all of the new household formation in the past 10 years has come from renters, and not homeowners.