Hospitality Lending Part 1: The Current State and Volatility of the Boston/Cambridge and Suburban Boston hotel market
August 20, 2018 - By:

By Jeff Nolan

After its sharp decline following the recession in 2008, the Hotel industry recovery began in March of 2010. This indicates that the current industry expansion period (as measured by increases in RevPAR) has lasted for a remarkably long time – almost 100 months.

In Eastern Massachusetts, the dynamics of the expansion have been mostly like the US expansion. However, per statistics provided by Pinnacle Advisory, occupancy in the Suburban Boston market peaked at 72.6 percent in 2015 and has been slowly declining. There was a 2.4 % decline in room demand in 2016, the first since 2009, while average rate growth has continued. New hotel room supply is also a major concern with approximately 3,000 new hotel rooms (28 Hotels) expected to be completed in 2017 and 2018. This represents approximately a 9.5 percent increase in the suburban hotel rooms.

In the Boston/Cambridge Market, occupancy peaked at 81.6 percent in 2014. Room demand and occupancy declined in 2016 but have rebounded in 2017. New hotel supply is of concern in Boston/Cambridge with a total of 33 hotels representing 6,389 rooms either under construction, approved, or currently under review. If these hotels are built, this would represent a 27% increase in hotel rooms in Boston/Cambridge. The growth in hotel room supply in the Boston/Cambridge market also has a direct impact on suburban hotels. When urban hotels sell-out or nearly sell-out due to a major convention, event or seasonal peak in demand, the “overflow” (“compression demand” as it is termed) migrates to suburban hotels. This room demand represents a significant percentage of overall suburban room demand. With the growth in new supply of urban hotels, this room demand will be significantly impacted as Boston hotels will be increasingly able to accommodate this peak demand.

Unlike retail and office properties, hotels have an inherent “mark to market” revenue stream. They are the first property type to be impacted by increases or decreases in the demand for their inventory (rooms). The impact of new construction of competitive rooms is also a major risk factor for hotels. Cities and towns are generally receptive to zoning changes and the development of hotels due to the room tax benefit and their limited impact on public services from hotels. It seems the only true barrier to entry for hotel development is when the value of land for competing development uses exceeds the hotel development value.

Market statistics demonstrate the volatility of hotel revenue. After the onset of the bust and 9/11, the Boston/Cambridge hotel market experienced a sharp decline in occupancy, which fell from 79 percent in 2000 to a low of 69 percent in 2001 (12.7% decline). Average rate also fell from $200.00 in 2000 to a low of $154.00 in 2003 (23% decline). This resulting in an overall 32 percent decline in RevPAR at the low point of the cycle in 2003. The market did not recover to 2000 RevPAR levels until 2007.

Boston/Cambridge Hotel Market Statistics 2000-2003

YearOcc %% ChngADR% ChngRevPAR% Chng% Chng Cumm
Source: Pinnacle Advisory Group


In the most recent recession in 2008-2009, urban hotels experienced a significantly more moderate, 19 percent decline in RevPAR that recovered to 2007 RevPAR levels in 2012. This recession was considerably more brief than 2001-2003 as urban hotels regained 2007 RevPAR levels by 2011 and suburban hotels regained 2007 RevPAR levels by 2012.
In 2001, the Suburban market, occupancy fell from 73.3 percent in 2000 to a low of 54.8 percent in 2003 (25.2 percent decline). Average rate fell from $108.00 in 2000 to a low of $91.00 in 2003 (15.8 percent decline). The result was a 37 percent decline in RevPAR.

In the most recent recession, suburban hotels experienced a 17 percent decline in RevPAR and recovered to 2007 RevPAR levels by 2011. Interestingly, the suburban Boston market took until 2013 to regain pre-recession RevPAR levels from 2000.

The analysis assumes that the full-service hotel achieves a net operating income ratio of 25 percent in 2000. Also, a deduction of 5.0 percent of total revenue is taken for Reserves for Replacements. This is intended to reflect the true capital expense of operating the hotel.

If you have any questions about the state of the market or how Cobblestone’s experts might be able to assist you please reach out to us at

Stay tuned next for the next edition of our Hospitality Lending blog series where we will provide a the first underwriting example for a full service hotel in Boston/Cambridge Market.