Utah Is at the epicenter of the rocky mountain region. Based on demographic trends, strong economic growth, quality of life, business relocations and tourism, Utah is no longer a fly-over state. According to STR, Utah's investment transaction volume for 2018 resulted in 7.1% of the overall existing inventory traded, whereas the national and regional average of hotel sales volumes has ranged between 4-5% over the past five years. This clearly indicates a continued appetite for hotel assets in the state of Utah and the greater rocky mountain region for both individual and institutional investors from around the country. In addition, there are currently 67 hotel projects in varying stages of development, from the entitlement stage to final construction, which translates to an additional 7,221 rooms in the state.
Some of the primary drivers that are contributing to this demand are tourism, business travel, and overall economic growth in the state and region. Every rocky mountain state, with the exception of Colorado, reported an increase in occupancy of 66.2% in 2018. This increase in occupancy will continue to put upward pressure on ADRs (Average Daily Rates) and RevPAR (Revenue Per Available Room) as supply growth remains strong, encouraging investment in the region. This demand for existing and to-be-built properties across all segments of the hotel market--including limited service, mid-scale, upscale, and luxury--is also putting upward pressure on valuations.
While investors are concerned about development and acquisition costs, there continue to be opportunities in the rocky mountain region for repositioning and soft-branding tired assets. As the hotel industry is moving toward the latter stages of the market cycle, investors should remain extremely selective when identifying investment opportunities, using a sharpened approach to their underwriting and due diligence. This is being prompted by a compression of cap rates, and in some instances, over valuation, which narrows the overall expected return for these assets.
In conclusion, while the long-term outlook for hotel growth and viability in Utah remains strong, investors should be cognizant of a slowing in the...