December 6, 2022

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Virginia Beach resort-area hotels prove good bet for investors

Hotels across the country have suffered significant financial losses over the past two years. This has not been the case for Virginia Beach resort area hotels, and the market’s strong performance should come as no surprise.

My associates at Grand Bay Advisors and I broker transactions with hotel brands throughout the United States — Marriott, Hilton, InterContinental Hotels Group and Choice Hotels, to name a few. While much of our business is conducted outside Hampton Roads, it is gratifying for our Norfolk-based firm to work with hotels here locally as well.

Over the past few years, our advisory group has closed on Virginia Beach Oceanfront hotel deals that represent more than $60 million in sales for our clients. Despite the economic challenge that national hotel markets have faced over the past decade (including during the pandemic), the resort area has held its own — and then some.

Since being recruited to Hampton Roads from Washington, D.C., in 1999 to open and run the first Marriott-branded hotel at the Oceanfront, I recognized that the market was underserved and underpriced. The first budget I presented for the hotel was $1 million in revenue above what the owners were projecting. The hotel hit my numbers during the first full year.

That is when I knew: Virginia Beach’s resort hotel performance was a well-kept secret.

Most people may be unaware that after 9/11, when almost every hotel market in the country contracted, two markets grew year over year. One was Philadelphia, which grew at about 4%. The other was the Virginia Beach resort, which grew at about 11%.

The next great challenge for the hotel industry came during the Great Recession, when nearly every hotel market in the U.S. contracted. The Virginia Beach resort area continued to grow 4-6% each year from 2008 to 2011. It was not until 2012 that growth finally slowed, to around 2-3%, due to sequestration. Still, the resort market never experienced a contraction during this period, while most other U.S. hotel markets did.

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In recent memory, not until COVID struck did the Virginia Beach resort experience a contraction or year-over-year loss. Even then, the downturn was more short-lived and less dramatic than most of the rest of the country.

During the pandemic’s early days, most U.S. hotel markets experienced occupancy declines of 50% or more. Just 90 days after the March 2020 U.S. lockdown, Virginia Beach area hotels were generating 70-80% pre-pandemic occupancies. Only 15 months after the initial lockdown, Virginia Beach’s premium-branded hotels already were exceeding pre-pandemic occupancy levels. During the 12 months starting in May 2021, premium-branded Virginia Beach area hotels exceeded pre-pandemic occupancies in six or more months. However, occupancy growth was not the sole contributor to Virginia Beach’s impressive performance during the pandemic. Average daily rate (ADR) was up in 2021 over 2019 for many of Virginia Beach’s resort-area hotels.

Smith Travel Research, which publishes hotel data for U.S. and global markets, ranked the Norfolk/Virginia Beach hotel market as No. 1 in terms of recovery during much of the first year of the pandemic. Though Norfolk hotels are included in the performance data, the markets differ greatly with the Oceanfront resort driving much of that positive data.

To further solidify the resort area’s reputation, multiple Oceanfront hotels are closing in on the $200 Revenue per available room (RevPAR) mark. The hospitality industry uses this metric to assess a property’s ability to fill its available rooms at various rates. A roughly $200 RevPAR is seen mostly in gateway markets, like Boston, Chicago, Los Angeles and D.C.

We believe it will be only a matter of time — possibly this year or next — when Virginia Beach’s resort area meets that benchmark. As large mixed-use projects are developed at the resort’s North End near Neptune Park and to the south at Rudy Loop, a $200 RevPAR could become the standard for the nicest Oceanfront hotels, such as the new Marriott Resort Virginia Beach Oceanfront property and the new Embassy Suites Hotel scheduled to open within the next year.

Though some may be amazed to learn that Virginia Beach resort hotels outperform most non-gateway markets around the U.S., my associates and I are not surprised. With easy access to visitors from the mid-Atlantic and Northeast, combined with a strong corporate base and government and government contracting presence, the Oceanfront features an ideal mix of business and leisure that gives the market advantages typically found only in gateway markets.

Matthew Winston is the co-founder of Grand Bay Advisors, a national full-service hospitality asset management, brokerage and consulting firm in Norfolk.