U.S. Select-Service Hotel Trends & Outlook
Strong recovery of transient demand accelerated select-service hotel investment appetite
- Chris Dewey
- Stephen M. Leslie
- Ophelia Makis
- Katy Reynolds
- Zachariah Demuth
Coming off one of the worst trading years in U.S. history, select-service hotel transaction volume is on track to exceed $12B in 2021, making it the strongest year since 2015. The sector has contributed 40% of total U.S. hotel investment volume YTD November 2021, 400 basis points higher than the 10-year average from 2011-20. Investors are increasingly attracted to select-service hotels due to higher and more consistent yields, increased operating profitability, and expectation of quicker RevPAR recovery relative to the U.S. lodging industry overall. Portfolio transactions have driven more than half of total volume, with capital originating predominantly from private equity investors and developers.
Select-service hotels benefit from a streamlined operating model, which resulted in a 26.9% GOPPAR premium in 2020 relative to full-service hotels. This has helped to fuel investor activity as margins become increasingly tight across the industry and many hotels continue to operate in a zero cash-flow environment. With select-service RevPAR expected to fully recover by 2023, ahead of the U.S. overall, JLL expects the sector’s positive investment momentum to continue into 2022.
Here are our four key takeaways:
- 2021 Nov YTD select-service hotel transaction volume is ahead of full-year 2019 levels by 33.5% and is on track to be the strongest trading year since 2015.
- A resilient rebound in demand boosted confidence for hoteliers to grow room rates, underpinning strong expectations for select-service RevPAR to fully recovery in 2023, ahead of the total U.S.
- Select-service hotels continue to attract investors and developers as they achieve higher and less volatile profitability, reaching a 26.9% premium in gross profit margin per available room relative to full-service hotels in 2020.
- Select-service hotels represent a defensive property sector with higher and more consistent yields than other hotels. The sector has also shown more long-term stability with limited average price per key volatility over the past 20 years.