Investors Want To Buy Into Boston's Improving Hotel Market, But Deals Are Still Scarce

As the weather warms, Boston is drawing not only flocks of tourists but also a host of hotel investors. 

Boston was ranked the fifth-most-attractive hotel investment market in the nation for 2024, behind New York City, Miami, San Francisco and Charleston, South Carolina, according to CBRE's Global Hotel Investor Intentions Survey. However, high interest rates and a lack of supply have held the city's investment sales market from reaching its potential. 

Hotel researchers and brokers tell Bisnow that although the macroeconomic environment is slowing sales and construction for now, it may benefit Boston's competitiveness in the long term.

"At the end of the day, Boston remains a very, very strong market," JLL Managing Director Alan Suzuki said. "There's a really healthy long-term prospect in the market, with a lack of supply and diverse demand generators and further recovery." 

Beantown attracts many tourists for its historic districts, picturesque waterfront and nationally acclaimed retail corridors. More than 8 million people booked overnight trips to Boston last year, according to Meet Boston. Visitation has steadily increased since it drastically dropped off in 2020.

In the first quarter, Boston's occupancy rate was 62.7%, up from 59.9% in the same quarter in 2023, according to data from CBRE. Revenue per available room stood at $111.9 in the first quarter, an increase from $105.6 in the same quarter last year.

Though hotel demand is gradually growing, investment sales and construction activity have slowed due to interest rates staying higher for longer and construction costs making projects hard to pencil.

Investment sales volume has declined across the country. The U.S. saw 66 hotel sales of more than $10M in the first quarter, with those deals totaling $2.5B, according to a report from LWHA. That is down from 83 deals totaling $3.5B in the same quarter last year and 128 deals totaling $7.9B in 2022. 

"The difference now is the interest rates are higher and all the deals have a higher yield threshold," said Erich Baum, a Boston-based senior vice president at hospitality consulting firm HVS. "That's why nothing's really happening in terms of sales or new construction."

Although there has been an overall decrease, there have still been a few high-profile hotel sales in Boston over the last year that show its appeal to investors. 

In October, the Boston Park Plaza sold for $370M to Parks Hospitality Holdings and rebranded it as the Hilton Boston Park Plaza. The same month, the Whitney Hotel sold to an affiliate of Egeria Group for $57M, Hotel Management reported.

In February, Ashford Hospitality Trust sold the Hilton Boston Back Bay hotel for $171M to Certares. The deal was part of a plan to sell 12 of the REIT's hotels and refinance its loans to pay off its $2.6B in debt due in 2026.

"That was a seller that could have used some liquidity," said JLL's Suzuki, who helped broker the deal. "Certares believed strongly in the long-term fundamentals of the asset and felt like it was a good investment for them."

On top of that, only one new hotel is being built in the city, according to HVS. CitizenM's largest U.S. hotel is being constructed at Samuels & Associates' 655K SF Lyrik development in the Back Bay. The 399-room hotel is set to open this summer and will be the operator's second hotel in the city.

CitizenM Managing Director of Investment and Development Rani Gharbie told  Bisnow in an email he sees Boston as an "essential growth market" for the firm because it has several attractive submarkets like the Seaport, Downtown Crossing, Back Bay and Cambridge.  

"These neighborhoods have their own robust demand drivers, from education and tech hubs to new Class-A office districts and national leisure destinations," he said.

"And yet the city is at an ideal scale where all of these neighborhoods can also be accessible to each other, so there is distinct submarket-level strength that also translates to citywide demand for high-quality hotel products. This mix makes for a very strong and resilient lodging market overall, and Boston also has a demonstrable business and leisure travel crossover with other key citizenM markets." 

Baum said the relative lack of supply benefits owners of existing hotels because they won't have much new competition. 

"Because there's no new supply in the pipeline except for that one property, that's really good news for people who own hotels right now," Baum said. " As demand grows and recovers, that increases their leverage."

Kaushik Vardharajan, director of the real estate program at Boston University’s School of Hospitality Administration, said that although investment has slowed in the market, there are still bright spots because bigger players are confident in the city.

"These are institutional investors who are extremely sharp," Vardharajan said. "You're seeing them coming in and buy ahead of the curve in Boston. So that's key and it gives me a greater level of comfort."

While leisure demand has normalized from its revenge travel trend of 2022, business and convention travel have grown, with both of Boston's major convention centers seeing strong advanced bookings.

"I believe that the convention centers in Boston are enjoying record attendance and room nights generated," Suzuki said. "I feel like that will be the case for several, several years in the future."

During fiscal year 2023, the Boston Convention & Exhibition Center attracted 400,000 attendees, which resulted in 422,000 room nights, according to the state. That is up from 246,000 booked rooms in FY 2022. The Hynes Convention Center attracted 185,000 room nights in FY 2023, up from 118,000 room bookings in 2022. 

In July, the city hosted the 114th annual NAACP National Convention, which brought in nearly 10,000 visitors, WGBH reported. In March 2023, the BCEC hosted PAX East, bringing 100,000 gaming enthusiasts to South Boston, the Boston Herald reported.

The hotels around the convention center have become highly competitive, raking in thousands of visitors each. However, plans to bring more development around the convention center have stalled.

The Massachusetts Convention Center Authority, which oversees the state's expo centers, dropped its request for proposals last month for a major mixed-use project on its land near the BCEC, the Boston Business Journal reported.

Hotel owners are optimistic about the second half of the year, as more events are scheduled to take place, leading to more demand across the hospitality sector.

"As we move into the second half of the year, we expect RevPAR growth to strengthen further due to citywide calendars and the location of many large-scale events," RLJ Lodging Trust CEO Leslie Hale said on a May 2 earnings call. "This will be favorable to our portfolio given our footprint in markets such as Boston, which will continue to benefit from citywides, in addition to robust business and international travel, supported by the growth in financial services, biotech and education."

The Bethesda, Maryland-based hotel REIT owns three hotels in Greater Boston: the AC Hotel by Marriott Boston Downtown, Embassy Suites by Hilton Boston Waltham and Wyndham Boston Beacon Hill.

Beyond conventions, Boston's hotels benefit from the city's diverse demand drivers, including life sciences, insurance, law firms and tech companies, plus universities and sports teams that bring thousands of people to the city yearly.

"Our concern was that if they were all from one single segment or one single sector, then that just makes the market more susceptible to a downturn," Vardharajan said. "I like the fact that we have a diverse set of sources, and some of them are recession-proof."

UPDATE, MAY 16, 3:20 P.M. ET: This story has been updated with comments from CitizenM's Rani Gharbie.