Hotel occupancy and revenue expected to rise in Virginia this year

Published April 9, 2018 by Paula C. Squires

Hotel occupancy and revenue are expected to rise in Virginia this year, according to a report from Marcus & Millichap. The Hospitality Research 2018 Investment Forecast for Washington D.C./ Central Atlantic credits reduced supply-side pressure in Virginia, combined with multiple corporate expansions and relocations, for its upbeat expectations for the industry. 

The national commercial real estate brokerage firm predicts that  the District of Columbia, Virginia and Maryland will each see the addition of 2,000 new rooms in their hotel pipeline.

Although Washington, D.C., regularly attracts the most number of hotel transactions of all Central Atlantic metros, most of these deals do not actually involve properties located in the District. In 2017, the forecast noted that twice as many hotels were traded in the suburbs of Northern Virginia than in the nation’s capital. Institutional investors primarily targeted these assets, which consist almost entirely of upscale or luxury establishments.

In other markets, including Baltimore, Richmond and Hampton Roads, most sales involve lower-priced, limited-service properties.  In this group of markets, buyers who seek assets in the $1 million to $10 million range tend to look toward the tourism destinations within Hampton Roads, closer to the coast. The forecast said that last year multiple trades were completed in Virginia Beach and in Williamsburg, a college town.

The forecast’s regional highlights:
Richmond hotels are well positioned for 2018. Minimal construction at just 0.9 percent of inventory relieves supply-side pressure during a time when the area is becoming a more popular destination for those who travel to enjoy fine cuisine, craft beer and nature.

Norfolk-Virginia Beach reported a 270-basis-point jump in occupancy and 9.3 percent increase in RevPAR (revenue per available room)  last year. A consistent trend of increased visitor spending will lead to continued positive metrics for 2018.

Tourism in Baltimore is on the upside as more than 25 million visitors come to the city each year, spending a collective $5.6 billion. An effort by tourism organizations has also increased the number of citywide conventions that will be held in the metro going forward.

2018 region forecast: 

Supply up 1.8 percent: The number of rooms under construction in the region increases from last year to 7,320. D.C., Virginia and Maryland will each receive more than 2,000 rooms.

Occupancy up 10 basis points:  A higher rate of supply growth this year will keep occupancy from advancing beyond a value of 65.2 percent.

ADR up 2.2 percent: ADR (average daily revenue) will improve to $125.55, less than it did last year, as new supply reduces the number of high occupancy nights essential for driving strong rate growth.  As ADR advances, RevPAR will increase for the eighth straight year to $84.94.  Last year RevPAR rose by 3.3 percent.

Investment: Private investors looking to cross into the hospitality market may find opportunities in the Richmond area. Accounting for differences in room number and building age, entry costs in the city are lower than in other Virginia markets for similar asset types. Buyers interested in holding properties for longer periods will observe lower cap rates in the Williamsburg area.