So far all of the new supply entering the market, as well as Airbnb, has not had an impact on properties backing CMBS loans, Trepp says. That may change this year.
The overall CMBS delinquency rate has been on a steady decline for several months — and it is expected this will continue — but individual asset classes have their own story to tell. The hotel sector, for example, has been dealing with both a rapid growth in rooms in recent years and the disrupting effect Airbnb has had on the industry. Neither has had an effect on loan performance to date. Indeed, the delinquency rate for the lodging sector has been consistently lower than the overall CMBS delinquency rate for the last few years, according to Trepp.
This may change however, according to a new report by Trepp, which says that with 10,000 new rooms expected to come online this year — the largests annual volume since 2009 — the hotel delinquency rate will be “worth watching.”
The Airbnb Threat
Not only will the large volume of new supply eventually pressure occupancy growth, but Trepp also expects rising competition from Airbnb will slow demand growth. Both trends will weigh down the sector, albeit not as much as one might expect. Trepp writes:
While new supply is expected to cause a year-over-year decline in occupancy, these declines will likely be very modest at less than 1.0%.
It is Airbnb that is the wild card. Even though it hasn’t affected CMBS loan performance, it has clearly had an impact on the hotel sector. Trepp points to a Forbes study from 2014 that showed that the 10 US cities with the largest Airbnb market share have reported 1.3% fewer hotel nights booked, 3.7% less in variable profits and 1.5% losses in hotel revenue since the entry of Airbnb. Trepp writes:
Airbnb continues to revolution the lodging market and keep room prices in check, making additional rooms available in popular travel spots during peak season.
It advises investors to scrutinize the US hotel industry on a market-by-market basis and monitor Airbnb’s presence as well as the concentration of market supply.
By: Erika Morphy (Globe St)
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