The tipping point for new hotels

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From Eamon O’Marah
Senior Vice President, Investment Development
Jones Lang LaSalle

The stars are aligned and market conditions point to a return to hotel construction in Boston. Our average daily room rate, revenue per available room, and occupancy rates are all rising. The downtown occupancy rate of 68.7% ranks higher than all but 4 of the top 25 US markets. And our average daily rate is $141.48 vs. $118.40 for the top 25.

An increase of business and leisure travel into Boston is driving these favorable numbers. There has been little new hotel product built here in the last five years. The previous development wave focused instead on luxury condos and high end residential. Today’s hotel market is clearly underserved.

Recently there’s been a high volume of quality hotels trading here. The W Hotel sold for $381,000 a key. Two blocks away, the Radisson went for $400,000 a room and owner Northwood is now talking about further investment into the property.

With values closing in on replacement cost, and capital flow driving cap rates down, our hotel market is reaching a tipping point. New construction is again viable but only for the right combination of product type, location, and sponsorship.

– Eamon

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