Hotel Value Trends

Analysts have worked to model the relationship of supply and demand that creates hotel value. The Hotel Valuation Index, developed by HVS International, is a sophisticated model that now comprises 46 U.S. markets. In the aabsence of major economic disruptions, hotel demand grows at a relatively steady rate. Consequently, supply additions have a measurable effect on lodging-property values. Supply additions occur principally when developers and investors perceive that building new rooms is less expensive than purchasing existing properties. In recent years investors have been able to purchase hotels at prices below replacement value. The HVI shows that that phenomenon is ending, as the value of existing rooms will exceed replacement cost for most market segments. After ten years of tracking major U.S. markets, HVS can project future valuation levels, based on expected supply trends and a relatively stable economy.