Check-In Time for Hotels

Hotel stocks are seeing impressive operating results, and the good times are likely to continue, considering the improving economy and the minimal amount of new construction in hot markets like New York, Los Angeles and Washington D.C.

Fundamentals across the industry have rebounded in the past several years as business travelers returned after the hiatus immediately following the terrorist attacks of 9/11. RevPAR -- a key hotel operating metric that stands for revenue per available room -- is now hovering around the peak 10% growth levels reached in 2000 for upscale hotels.

Moreover, occupancy levels have already passed their historical peak levels -- the mid-70% range -- for full-service hotels in places like Los Angeles and Orange County in California, and Tampa and Fort Lauderdale in Florida, says Abigail Marks, an economist who tracks the hotel industry for Torto Wheaton Research, a unit of CB Richard Ellis (CBG Quote). In New York City, occupancy levels for full-service hotels reached 74.3% in the first quarter.

In such markets, the future growth will come mostly from higher room rates, but occupancy levels could peak even higher, Marks says.

"The hotel sector is still very, very strong, and the economy is still expanding, so business travel and leisure travel is very strong," Marks says. "The supply is not showing signs yet of being maxed."

LaSalle Hotel Properties (LHO Quote), which owns luxury hotels in attractive markets like Washington D.C. and Southern California, posted a big 13.7% jump in RevPAR growth for its first quarter, driven by a 9.4% increase in average daily rates and a 3.9% increase in occupancy.

Starwood Hotels (HOT Quote), which operates hotels nationally under luxury brand names such as Westin, St. Regis and W Hotels, recently reported a 12.8% increase in RevPAR for its North American hotels.

Upscale Hotels on the Upswing

Source: Smith Travel Research