Special Edition of Lodging Insights: Federal Reserve Rate Increase
December 20, 2016 2:20pm
Mark Woodworth and Jack Corgel give their reaction to the Federal Reserve’s rate increase and share their opinion on what it means for the lodging industry.
The Federal Funds rate lies on the front end of the yield curve. Changes in this rate resulting from direct actions by the Federal Reserve affect changes in other short-term interest rates by similar magnitudes. Rates further out on the curve however are less responsive to changes in the Federal Funds rate, a situation Chairman Alan Greenspan who was once frustrated by this unresponsiveness described as an ‘interest rate conundrum’. Other monetary policy methods can be introduced to influence rates along the longer segment of the yield curve. In the absence of these policy actions, long rates will fluctuate with trading based on expectations for future economic growth and inflation.
With this backdrop, hotel market participants should not count on capitalization and interest rates moving in concert with changes in the Federal Funds rate. Instead, there should be recognition that policy actions targeting the Federal Funds rate happen because the Federal Reserve believes the economy is strengthening; thus long rates will systematically follow a resetting the Federal Funds rate on their own schedule. The path from a reset Federal Funds rate to a reset of Treasury long rates to a reset of hotel market rates is complicated. Statistical analyses linking changes in Treasury long rates to important property market rates need to hold other factors constant that influence property market rates. An analysis was recently completed that correlates hotel capitalization rates with 10-year Treasury rates.1 A brief summary of the findings is provided.
For CBRE’s analysis on the Federal Reserve’s interest rate increase, click HERE.
1 To download and read Jack Corgel’s full study, “The Effect of a Rise in Interest Rates on Hotel Capitalization Rates”, click HERE.
CBRE Hotels is a specialized advisory group within CBRE providing brokerage, valuation, consulting, research and capital markets services to companies in the hotel sector. CBRE Hotels is comprised of over 375 dedicated hospitality professionals located in 60 offices across the globe.
Contact: R. Mark Woodworth
+1 404 812 5085
An Analysis of Franchise Fees
U.S. Hotel Demand Hits an All-Time High
CBRE’s 2018 Hotel Industry Outlook Remains Positive with Continued, Albeit Slower, Growth Predicted
The Components of Payroll Costs in Hospitality
Management Fees – A Growing Expense
VIDEO: CBRE's 2017 Trends® in the Hotel Industry Report
After Strong First Quarter, CBRE Forecasts Eighth Consecutive Year of Occupancy Growth for U.S. Hotels
Paying the Intermediaries: An Analysis of Hotel Commissions
Which US Hotel Markets Are On the Bubble?
U.S. Hotel Profits Grow in 2016 Despite Slowdown in Revenue
Select-Service Hotels: Efficient and Profitable
CBRE's April 2017 Lodging Insights Video
U.S. Hotel Revenue Growth Driven by Overlooked Sources in Lower Chain Scales and Secondary Markets
Hotel Rooms Departments Struggle to Control Expenses
Hotels Give To Get: An Analysis of Complimentary Services and Rooms
CBRE Issues U.S. Lodging Forecast, Particularly for Historic Hotels of America
CBRE's Lodging Insights December 2016 Video
2017 Hospitality Outlook Is a Mixed Bag: U.S. Occupancy High, But ADR Growth Is Disappointing
CBRE Hotels Arranges $121 Million Sale of Four Seasons and Residences in Vail, CO
Please login or register to post a comment.