April 26, 2018

It is generally accepted that hotel development, investment and acquisition follows three basic steps (Rushmore, 2001);

  1. Identifying market areas that show long term potential for hotel investment
  2. Choosing a lodging product that takes advantage of the dynamics of the local supply and demand characteristics
  3. Search and selection of a suitable site

Whereas, there is value in the individual data and information sources to identify potential markets for lodging investment decisions, a systematic and formal analysis of aggregate market potential can be a useful tool for hotel developers and investors. As a joint research project between The School of Hospitality Business, MSU-CIBER, and globalEDGE, we have developed this objective measure in the form of a Lodging Market Potential Index (L-MPI©)

As a first step in hotel development, investment and acquisitions decisions, this index identifies market areas that show long term potential for hotel investment. It will enable hotel developers and investors to conduct a relative comparison of the 25 largest lodging markets (as tracked by Smith Travel Research) along 10 Dimensions Dimension are measured using 30 different indicators and are weighted to determine their contribution to the overall market potential index. The Lodging Market Potential is based on a scale of 1 to 100.

The School of Hospitality Business Real Estate Advisory Council members were instrumental in working with the faculty researchers in The School, in determining the ten dimensions, associated indicators and their corresponding weights. To measure the performance of each dimension, objective, credible, reliable and quantifiable indicators were identified and are listed below the index.

Dimensions and Measures of Lodging Market Potential Index for 2018

Dimension Weight Measures Used
Size of Economic Base 5 %
  • Regional GDP - 20161
  • Population - July 1, 20162
  • FIRE, wholesale trade, services employment (in thousands) - 20173
  • Total Employment (in thousands) - Dec 20174
Growth of Economic Base 6 %
  • Regional GDP Growth - 2011-20161
  • Population Growth - 2011-20162
  • Growth in FIRE - 2012-20173
  • Total Employment Growth - 2012-20174
Economic Stability (Standard Deviation) 5 %
  • Volatility in per capital real regional GDP - 2012-20161
  • Volatility in Population - 2011-20162
  • Volatility in FIRE - 2012-20173
  • Volatility in Total Employment - 2012-20174
Market Consumer Purchasing Power 5 %
  • Per Capita Personal Income - 20151
  • Unemployment - Dec 20174
  • Total Retail Sales - 20163
  • Eating and Drinking Place Sales - 20163
Tourism Trends 7 %
  • Airport Traffic - 20165
Growth in Tourism Trends 8 %
  • Change in Airport Traffic - 2011-20165
Performance of Commercial Real Estate 7 %
  • Office Space Vacancy Rate - Q4 20176
  • Retail Space Vacancy Rate - Q4 20177,9
  • Office Space Net Absorption - Q4 20178
  • Retail Space Net Absorption - Q4 20177,9
Hotel Market Supply and Absorption 17 %
  • Room Inventory Absorption - Dec 2016 - Dec 20178
  • New Hotel Supply Construction Pipeline - Dec 20178
Hotel Market Performance 20 %
  • ADR Annual - Dec 20178
  • REVPAR - Dec 20178
  • Occupancy - Dec 20178
Hotel Market Performance Growth 20 %
  • Annual ADR Growth - 2012-20178
  • REVPAR Growth - 2012-20178
  • Occupancy Growth - 2012-20178
Release Dates