NYC Among Top Hotel Markets Nationally; Economic Volatility Threatens Future
November 8, 2011 - The New York hotel market currently ranks 2nd out of 25 metropolitan areas in Michigan State University's (MSU) Lodging Market Potential Index (L-MPI©), right behind the San Francisco-San Mateo, Calif. area. But the news might not be all good, according to AJ Singh, associate professor in The School of Hospitality Business at MSU, and leader of the team that developed the index. The index also indicates that New York's economy is the most volatile and its hotel market supply (room inventory) and absorption (new hotel pipeline) ratio is the worst of the 25 markets studied.
The index was designed by MSU's School of Hospitality Business to identify the long-term potential for hotel investment in the top lodging markets in the U.S., ranking each location along 10 key dimensions. The dimensions - which include the size, growth, and stability of the economic base; growth rate and trends of tourism in the area; hotel market supply, absorption, performance and performance growth; and performance of commercial real estate - are measured using 30 different indicators. Each dimension is then weighted to reflect its contribution to the overall market potential index. The Lodging Market Potential is based on a scale of 1 to 100.
“The top ranking in MSU's Lodging Market Potential Index does not mean a particular market has good investment opportunities for the future,” he says. “It might mean the opposite. Top-ranked cities have more buyer competition, resulting in lower capitalization rates and lower returns on investment. Many of the low-ranked cites can offer much more attractive investment opportunities.” Perhaps surprising to many, says Singh, is that the Tampa-St. Petersburg, Fla., area and the Phoenix, Ariz., market ranked at the bottom of the index.
While the web-based, interactive tool was originally devised as a teaching tool for students in The School of Hospitality Business, MSU researchers think it could help lodging industry developers and investors conduct a relative comparison of the market potential of various metropolitan areas.
“Given the significance of the lodging industry in the overall economic success of an area,” says Singh, “we think this index will provide both business and civic leaders with a way to assess the attractiveness of their community to new investment.” The index was developed by Singh; Ray Schmidgall, Hilton Hotels Professor of Hospitality Financial Management, in The School of Hospitality Business; and Tunga Kiyak, managing director of MSU's Center for International Business Education and Research (CIBER).
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