Publication Date

Winter 2004

Abstract

[Excerpt]. Whether we want to accept the fact or not the hotel business (both the sale of rooms and assets) is a cyclical business. Cycles exist in the hotel business for some good and well documented reasons. Most importantly, hotels are not the same as most other commodities like, say tooth paste. By this I mean that when the demand for rooms suddenly spikes, as it did during the recent holiday season in New York City the supply of rooms cannot correspondingly expand within a short period to satisfy the new level of demand. Should the same circumstances occur in the market for tooth paste, producers will turn up the machinery not operating at full capacity, add another work shift, and turn out more tubes before you can say ‘dental bills.’ Thus, hotel supply change lags demand in both the upward and downward directions meaning that RevPAR persists at relatively high levels and growth rates following an upward movement in demand and RevPAR persists at low levels and growth rates following a decline in demand.

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© The Counselors of Real Estate. Reprinted with permission. All rights reserved.

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