U.S. Hotel Appraisals Hotel Market Snapshot: Portland, Oregon
The downtown Portland hotel market is weathering the effects of the economic recession and the previous decade’s influx of new supply.
by Kasia Russell
On the national scale, hotel performance trends, transactions, and new openings continue to struggle. Occupancy levels, while trending upward, are still below the baseline levels seen prior to the start of the recession of 2008/09. These recent occupancy gains have been chiefly responsible for the national rise in RevPAR, as average daily rate growth remains anemic. While the lending climate has warmed somewhat, allowing for more hotel transactions, the rate of new hotel openings remains sluggish.
In some respects, Portland’s hotel market reflects these hotel-specific trends, while in others a relatively even saturation of supply and demand gives it the potential to pull ahead. The resurgence of demand from area employers, an improving local economy, and strong summer travel have brought occupancy at Portland hotels back to pre-recession levels. Although some rate growth has occurred, it has been tempered by price-sensitivity from corporate and group travelers, which continue to bargain with hoteliers for discounted rates. The following highlights aspects of Portland that reflect the strengths, the weaknesses, and room for growth for the area’s hotel market in the current climate.
Economic Indicators
Portland hotels are enjoying a strong summer travel season, with passenger levels at Portland International Airport up 5.3% year-to-date. Other key economic indicators, however, show that the city’s overall economy needs to gain some ground. There is continued weakness in the local real estate market, with prices still on the decline according to Standard & Poor’s Case-Shiller 20-City Home Price Index for May. Median home prices have fallen 7.6% year-over-year and the percentage of homeowners falling behind on their payments is increasing. On a more positive note, Portland's 9% unemployment rate for June of 2011 is much improved compared to June of 2010 when it stood at 10.5%. It is also slightly better than peer cities such as Seattle (9.3%) and Boise (9.7%).
Hotel Demand in Portland
The deluge of summer travelers has helped revive Portland’s hospitality market over the past few months. Despite the Pacific Northwest's reputation as a land of gray skies, cold, and mists, tourism thrives in the region, especially during the peak season from June to September. Portland's tourism, sports, and retail attractions draw the majority of leisure demand to local hotels. Many travelers come to Portland for the summer festivals held near the banks of the Willamette River. The city hosts a wide variety of major- and minor-league sporting events and is home to the NBA’s Portland Trail Blazers and baseball’s Portland Beavers. With the absence of a state sales tax, many out-of-state visitors come to Portland to take advantage of the tax-free shopping.
Portland's demand mix is strongly transient, with meeting and group business taking a secondary role. The Oregon Convention Center is located across the river from Downtown Portland, with proves an inconvenience for convention-goers as the area’s largest hotel is located downtown. There are currently no reported plans to construct a dedicated convention hotel adjacent to the center.
Hotel Supply
Between 1999 and 2010, Portland’s hotel supply increased by 51%. The influx of new supply that entered the market between 2007 and 2009 has now been largely absorbed, a situation fueled by the resurgence of demand associated with Oregon Health & Science University, local businesses, and leisure travel. No new hotel construction projects are underway in or near Downtown Portland, with just three projects in the earliest planning stages.
Key Metrics for the Portland Hotel Industry
The following table illustrates data on cap rates for first-tier hotel properties1, as published by the Real Estate Research Corporation (RERC).
Lower cap rates generally translate into higher values, and the cap rates for Portland thus represent more favorable valuation parameters for Portland hotels vs. averages for hotels in the Western U.S. and the nation as a whole. The lower cap rates also reflect less perceived risk in the Portland hotel market, both in terms of going-in cap rates (which are applied to a hotel’s first-year net operating income) and terminal cap rates (which are applied to the end of a typically ten-year holding period).
The table below illustrates performance dynamics for Portland hotels from 2007 to 2010.
The Portland hotel market has traditionally experienced healthy occupancy rates; as reported above, a large amount of new supply arrived during the recent recession, yet occupancy levels held around 65%. Most travelers to Portland, however, exhibit a high degree of price-sensitivity, thereby holding average daily rate below that of some other Pacific Northwest markets, including Seattle.
Conclusion
Heavily dependent on transient travel, the lodging market in Portland has shown signs of recent improvement as leisure and business travelers ramp up plans in the city. Competition for customers remains strong and is keeping room rates stable; at the same time, market-wide average rate growth has yet to take hold. Given the strengthening demand trends and the relative lack of new competitive supply on the horizon, room rates are expected to make up lost territory over the next several years, helping Portland hotels achieve more robust RevPAR growth as the nation moves beyond the drag of the recession.
_______________________________
1 - The RERC defines first-tier investment properties as being of “new or newer-quality construction in prime to good locations.”
The downtown Portland hotel market is weathering the effects of the economic recession and the previous decade’s influx of new supply.
by Kasia Russell
On the national scale, hotel performance trends, transactions, and new openings continue to struggle. Occupancy levels, while trending upward, are still below the baseline levels seen prior to the start of the recession of 2008/09. These recent occupancy gains have been chiefly responsible for the national rise in RevPAR, as average daily rate growth remains anemic. While the lending climate has warmed somewhat, allowing for more hotel transactions, the rate of new hotel openings remains sluggish.
In some respects, Portland’s hotel market reflects these hotel-specific trends, while in others a relatively even saturation of supply and demand gives it the potential to pull ahead. The resurgence of demand from area employers, an improving local economy, and strong summer travel have brought occupancy at Portland hotels back to pre-recession levels. Although some rate growth has occurred, it has been tempered by price-sensitivity from corporate and group travelers, which continue to bargain with hoteliers for discounted rates. The following highlights aspects of Portland that reflect the strengths, the weaknesses, and room for growth for the area’s hotel market in the current climate.
Economic Indicators
Portland hotels are enjoying a strong summer travel season, with passenger levels at Portland International Airport up 5.3% year-to-date. Other key economic indicators, however, show that the city’s overall economy needs to gain some ground. There is continued weakness in the local real estate market, with prices still on the decline according to Standard & Poor’s Case-Shiller 20-City Home Price Index for May. Median home prices have fallen 7.6% year-over-year and the percentage of homeowners falling behind on their payments is increasing. On a more positive note, Portland's 9% unemployment rate for June of 2011 is much improved compared to June of 2010 when it stood at 10.5%. It is also slightly better than peer cities such as Seattle (9.3%) and Boise (9.7%).
Hotel Demand in Portland
The deluge of summer travelers has helped revive Portland’s hospitality market over the past few months. Despite the Pacific Northwest's reputation as a land of gray skies, cold, and mists, tourism thrives in the region, especially during the peak season from June to September. Portland's tourism, sports, and retail attractions draw the majority of leisure demand to local hotels. Many travelers come to Portland for the summer festivals held near the banks of the Willamette River. The city hosts a wide variety of major- and minor-league sporting events and is home to the NBA’s Portland Trail Blazers and baseball’s Portland Beavers. With the absence of a state sales tax, many out-of-state visitors come to Portland to take advantage of the tax-free shopping.
Portland's demand mix is strongly transient, with meeting and group business taking a secondary role. The Oregon Convention Center is located across the river from Downtown Portland, with proves an inconvenience for convention-goers as the area’s largest hotel is located downtown. There are currently no reported plans to construct a dedicated convention hotel adjacent to the center.
Hotel Supply
Between 1999 and 2010, Portland’s hotel supply increased by 51%. The influx of new supply that entered the market between 2007 and 2009 has now been largely absorbed, a situation fueled by the resurgence of demand associated with Oregon Health & Science University, local businesses, and leisure travel. No new hotel construction projects are underway in or near Downtown Portland, with just three projects in the earliest planning stages.
Key Metrics for the Portland Hotel Industry
The following table illustrates data on cap rates for first-tier hotel properties1, as published by the Real Estate Research Corporation (RERC).
Lower cap rates generally translate into higher values, and the cap rates for Portland thus represent more favorable valuation parameters for Portland hotels vs. averages for hotels in the Western U.S. and the nation as a whole. The lower cap rates also reflect less perceived risk in the Portland hotel market, both in terms of going-in cap rates (which are applied to a hotel’s first-year net operating income) and terminal cap rates (which are applied to the end of a typically ten-year holding period).
The table below illustrates performance dynamics for Portland hotels from 2007 to 2010.
The Portland hotel market has traditionally experienced healthy occupancy rates; as reported above, a large amount of new supply arrived during the recent recession, yet occupancy levels held around 65%. Most travelers to Portland, however, exhibit a high degree of price-sensitivity, thereby holding average daily rate below that of some other Pacific Northwest markets, including Seattle.
Conclusion
Heavily dependent on transient travel, the lodging market in Portland has shown signs of recent improvement as leisure and business travelers ramp up plans in the city. Competition for customers remains strong and is keeping room rates stable; at the same time, market-wide average rate growth has yet to take hold. Given the strengthening demand trends and the relative lack of new competitive supply on the horizon, room rates are expected to make up lost territory over the next several years, helping Portland hotels achieve more robust RevPAR growth as the nation moves beyond the drag of the recession.
_______________________________
1 - The RERC defines first-tier investment properties as being of “new or newer-quality construction in prime to good locations.”