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Historical Perspective

CBRE Projects Historic Properties To Outperform Contemporary Hotels

Friday, January 06, 2017
Dennis Nessler
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Driven by the popularity of the lifestyle trend in the lodging sector and the ability to garner a higher rate, the outlook for historic hotels in the U.S. remains strong with projected RevPAR growth outpacing comparable hotels throughout the industry.

That outlook was provided by CBRE Hotels’ Americas Research, which for the third consecutive year presented a Historic Hotels of America – CBRE five-year forecast at the association’s annual conference.

Key among the findings was that over the next five years, RevPAR for historic hotels is expected to grow at a compound average annual rate of 2.7 percent, which exceeds forecasts for the nation’s upper-upscale and luxury hotels, which have been pegged at 2.0 percent and 1.7 percent, respectively. The lion’s share of the RevPAR growth for historic hotels is expected to stem from increases in ADR, according to CBRE.

Mark Woodworth, senior managing director of CBRE, offered some perspective on what is propelling this segment of properties. “One of the things that we’ve seen is that historic hotels by their very nature and character have been benefitting from this ‘lifestyle phenomena.’ People see that and they enjoy the history, the character, the uniqueness of the experience that one gets when you go to one of these hotels,” he said.

Woodworth further added, “it’s very difficult to replace these type of lodging assets, and that uniqueness has helped them to perform so consistently well for some time.”

Historic Hotels of America (HHA) includes more than 295 historic hotels, resorts, and small inns. In order to be nominated and selected for membership into this program, a hotel must be at least 50 years old; has been designated by the U.S. Secretary of the Interior as a National Historic Landmark or listed in or eligible for listing in the National Register of Historic Places; and recognized as having historic significance.

Woodworth noted that historic hotels generally fall into the strong three-and-a-half to four-star category, which draws comparisons to the upper-upscale segment. “They do tend to move very much in sync with that [segment],” he said, adding there is “some luxury [product] sprinkled in.”

According to STR, through the first three quarters of 2016, the aggregate RevPAR for historic hotels fell between the national averages for all upper-upscale and luxury hotels in the U.S.

Based on a set of information pulled from CBRE’s database of hotel operating statements, in 2015 historic hotels (including those that are not members of HHA) outperformed contemporary hotels (which are defined as anything built after 1966) in virtually every metric. For example, RevPAR for these properties came in at $202.53 versus $175.76 for contemporary hotels, while ADR was $256.22 for historic properties versus $229.59. Furthermore, according to CBRE, historic hotel revenue has recovered fully from the 2007 downturn, while comparable contemporary hotels are still lagging in revenue recovery.

“The data strongly supports the idea that many consumers favor and will pay more for the unique hotel experience historic properties can offer,” said Woodworth.

Meanwhile, annual occupancy levels for HHA members remains 8 to 10 percentage points above the national average occupancy level through 2020. Woodworth pointed out the role of the inherent limited supply growth for historic hotels in helping the segment perform well, particularly when compared to other segments.

“Almost by nature the supply of historic hotels isn’t growing. How can you justify the capital or investment needed to make something competitive today; those [opportunities] are pretty few and far between,” he said. “What we are seeing is with luxury hotels—even though it’s a small subsegment of the total—is that supply is growing at a fairly decent clip so that will contribute to the lower levels of RevPAR growth within the luxury tier as opposed to the historic hotel category,” he said.

In addressing how historic properties generally perform relative to the overall economy, Woodworth underscored the role of group business. “For the vast majority of them there’s traditionally a meaningful group component, because they have the old grand ballrooms, etc. We do know that companies and trade group associations do begin to cut back on those types of activities as we’re either expecting economic contraction or we’re in contraction. That’s where I would expect historic hotels to lead a downturn and for similar reasons probably lag the recovery,” he said, adding this past economic recovery was a bit of an anomaly in that it didn’t follow that pattern.

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Dennis Nessler    Dennis Nessler
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