U.S. Hotel Appraisals Hotel Market Snapshot: Denver, Colorado
Over the past 18 months, Denver hotels have laid claim to a significant increase in occupancy, though average rate has been slow to follow. What can hoteliers expect on the horizon in terms of performance and transaction trends across Denver submarkets?
by Brett Russell
In the midst of the slow and rocky recovery of the national economy, Denver’s progress stands out. Hotel revenues and values slid down a cliff during the recent recession, forcing bankruptcies and depressed sales of many hotels across the country and grinding the hotel transactions market to a halt. Denver area hotels lost some footing as well, but we’ve seen a full twelve months of upward movement in hotel performance and most recently some forward progress in the transactions arena. The following article highlights performance markers across Denver submarkets and hotel segments, as well as what trends are apparent in the hotel transactions market.
Hotel Performance
The following table shows occupancy, average rate, and RevPAR performance for eight Denver submarkets in 2009 vs. 2010.
Year-over-year occupancy grew across Denver’s submarkets in 2010; however, average rates have been unsteady. This is due to the fact that hotels in many submarkets were compelled to offer discount rates with demand still tentative and competition fierce for targeted group and local negotiated accounts; a limited number of new hotels have also opened in the Denver area over the past three years, putting further pressure on average rates. All in all, half of the submarkets listed above saw average rates decline in 2010; however, Midtown, which saw the introduction of new supply in 2010, was the only one to suffer a decrease in RevPAR. Current trends in the market suggest that the impetus for hoteliers will center on raising rates to underpin the market’s recovery as we head into 2012.
Overall, hotels in the Denver area realized RevPAR growth in excess of 10%. The Downtown submarket led the way, with South Denver and the Highway 36 Corridor also looking strong. The chart below shows the percentage change of occupancy, average rate, and RevPAR for eight Denver metro area submarkets in 2009 vs. 2010.
PERCENTAGE CHANGE – DENVER SUBMARKETS
Hotel Performance by Service Type
While nearly all of Denver’s hotel submarkets saw performance improve in 2010, it’s important to breakdown the performance analysis by hotel service type. The table below shows occupancy, average rate, and RevPAR performance for limited-, select-, and full-service hotels in the Denver metro area in 2009 vs. 2010.
2009 - 2010 DENVER MARKET PERFORMANCE – HOTEL TYPE
Occupancy growth was consistent among limited-, select-, and full-service hotels, and while the results for average rate were mixed, the strength of these occupancy gains raised RevPAR across all three segments. As expected, full-service hotels, which were hit hardest in the downturn, have realized a strong rebound, with year-over-year RevPAR growth nearing 16%. Limited-service hotels, which include extended-stay properties, also recovered strongly. As we head into 2012, average rate growth is expected to play a central role in making RevPAR gains across each hotel segment.
PERCENTAGE CHANGE – DENVER SUBMARKETS
Impact on Hotel Transactions
Performance improvements from 2009 to 2010, as well as the easing of capital markets, have increased investor confidence in the hotel sector, with interest targeting trophy assets, gateway cities, and primary markets. According to data from U.S. Hotel Appraisals, the total number of 2010 transactions nationwide more than tripled that of 2009, and the average price per room increased by over 45%. Improving revenue trends that started in 2010 and have continued into 2011 have broadened the scope of investor interest, leading to a greater number of sales in secondary markets. Additionally, the overall recovery illustrated for 2010 has helped increase the market value of lodging assets by allowing for the forecasting of higher future revenues versus relying on a depressed trailing-twelve-month period.
The attraction of more investors and sellers to the market should push 2011 transactions activity well above the levels recorded in 2010. This trend is evident in the Denver metro area, where confirmed sales have moved from just two in 2009, to three in 2010, to five in just the first seven months of 2011. This year’s sales include the Courtyard by Marriott Downtown ($46 million), the JW Marriott Cherry Creek ($72.6 million), the Sheraton Denver Tech Center ($9.1 million), the Staybridge Suites Cherry Creek ($10 million), and the Marriott Denver Gateway Park ($46 million).
Conclusion
The vitality of the national economy still hangs in the balance, and the ability for businesses, groups, and vacationers to generate growing levels of hotel demand remains unknown. The progress made by Denver’s lodging market over the past year, however, is encouraging. It’s of special note that limited- and select-service hotels in Denver, which didn’t suffer losses as deep as the full-service segment, have nonetheless made significant gains—an indication that demand for these types of hotels in Denver is healthy and expanding. The five sales of Denver hotels in the first half of 2011 also points to a more vigorous transactions market, supported by investor confidence in the performance of area hotels. If hoteliers can begin to command stronger average rates, RevPAR for Denver hotels should continue to experience robust growth going into 2012 and beyond.
About the Author:
Brett Russell is Managing Director of the U.S. Hotel Appraisals office in Denver, Colorado. A graduate of the University of Mount Union in Ohio, Brett has personally consulted on assignments for more than 200 hotels, including property appraisals and market and feasibility consulting, with an emphasis on proposed hotel and resort assets. Contact Brett at (720) 877-1376 or brussell@ushotelappraisals.com.