CBRE HOTEL CAP RATE SURVEY

First Half 2019

The following paragraphs summarize the findings of CBRE’s first half 2019 survey of hotel cap rates.

CBD Properties

Unlike in recent surveys, U.S. hotel cap rates did not move in lockstep in H1 2019. Cap rate movement reflected the disparate supply-and-demand dynamics across the country. STR data for H1 2019 indicates greater supply growth than demand growth (2.5% versus 1.3%) in the top-25 markets and greater demand growth than supply growth (2.6% versus 1.8%) in other hotel markets. The most dramatic cap rate increases occurred among full-service and economy classes in Tier I cities. Every market class in Tier III cities recorded declines in hotel cap rates, the most noteworthy of which was a 9-bp drop in the economy class.

Cap rate increases in H1 2019 were modest albeit consistent across CBD market classes (luxury, full-service, select-service, and economy). The overall CBD cap rate increased by only 3 bps to 8.01%, marking the first time since H1 2013 that the CBD hotel cap rate exceeded 8%. Evidence suggests that the pace of CBD hotel room additions is quickening. STR data revealed a widening spread between supply and demand growth throughout H1 2019, which is influencing investor bidding.

Changes in CBD hotel cap rates across Tier I, Tier II and Tier III markets and corresponding classes differed in H1. The largest increases occurred for the full-service and economy classes in Tier I markets. Cap rates in Tier I CBDs for full-service hotels increased by 10 bps to 7.30% and by 12 bps for economy hotels. In contrast, CBD cap rates in Tier III markets declined 5 bps to 8.49%, while those in Tier II markets remained relatively unchanged at 8.18%. STR reported a positive spread between demand and supply growth in small markets. Anecdotal evidence collected by CBRE also suggests that investor interest in small markets is growing.

Full-service hotels dominate the CBD segment. Except for Denver and Orlando, the lowest full-service CBD cap rates remain in coastal markets. Cap rates in the Boston, Washington, D.C. and Seattle CBDs haven increased but remain below 7.00%. In some California, Florida and non-coastal-market CBDs, full-service cap rates are at mid-8% levels.

Suburban Properties

The average suburban hotel cap rate increased by 5 bps to 8.55% in H1. Suburban hotel cap rates for full-service properties in Tier I metros increased by 20 bps to 8.02%. Cap rates for suburban economy hotels rose 14 bps to 9.56%. In Tier III suburban markets, hotel cap rates declined by 6 bps to 8.91%. The largest decline was 10 bps for economy hotels to 10.00%.

To download a complimentary copy of the CBRE First Half 2019 Hotel Cap Rate report, click here.​