Hotels in the Virginia Beach resort area prove a good bet for investors

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

My associates at Grand Bay Advisors and I negotiate transactions with hotel brands across the United States – Marriott, Hilton, InterContinental Hotels Group and Choice Hotels, to name a few. Although much of our business takes place outside of Hampton Roads, it is rewarding for our Norfolk-based business to also work with local hotels.

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

Ever since I was recruited to Hampton Roads from Washington, DC in 1999 to open and manage Marriott’s first branded oceanfront hotel, I’ve recognized that the market was underserved and undervalued. The first budget I presented for the hotel was $1 million in revenue above what the owners expected. The hotel hit my numbers in the first full year.

That’s when I knew: the performance of the Virginia Beach resort hotel was a closely guarded secret.

Most people might not know that after 9/11, when nearly every hotel market in the country contracted, two markets grew year over year. One was Philadelphia, which rose about 4%. The other was the resort town of Virginia Beach, which rose about 11%.

The next big challenge for the hospitality industry came during the Great Recession, when nearly all hotel markets in the United States contracted. The Virginia Beach resort area continued to grow 4-6% each year from 2008 to 2011. It wasn’t until 2012 that growth finally slowed to around 2-3% due to sequestration . Yet the resort market never experienced a contraction during this period, unlike most other US hotel markets.

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In recent memory, it wasn’t until COVID hit that the resort town of Virginia Beach experienced a year-over-year contraction or loss. Even then, the downturn was more fleeting and less dramatic than most of the rest of the country.

At the start of the pandemic, most U.S. hotel markets saw occupancy declines of 50% or more. Just 90 days after the March 2020 U.S. lockdown, hotels in the Virginia Beach area were generating 70-80% occupancy before the pandemic. Just 15 months after the initial lockdown, high-end hotels in Virginia Beach were already exceeding pre-pandemic occupancy levels. In the 12 months beginning in May 2021, upscale hotels in the Virginia Beach area exceeded pre-pandemic occupancy rates by six months or more. However, growing occupancy hasn’t been the only contributor to Virginia Beach’s impressive performance during the pandemic. The average daily rate (ADR) increased in 2021 compared to 2019 for many hotels in the Virginia Beach resort area.

Smith Travel Research, which publishes hotel data for U.S. and global markets, ranked the Norfolk/Virginia Beach hotel market first in terms of recovery for much of the first year of the pandemic. Although Norfolk hotels are included in the performance data, the markets differ significantly, with the Oceanfront resort driving much of this positive data.

To further bolster the reputation of the resort area, several Oceanfront hotels are approaching the $200 revenue per available room (RevPAR) mark. The hospitality industry uses this metric to gauge a property’s ability to fill its available rooms at various rates. A RevPAR of around $200 is seen primarily in gateway markets, such as Boston, Chicago, Los Angeles, and DC

We think it will only be a matter of time – maybe this year or next – when the Virginia Beach resort area hits that benchmark. As large mixed-use projects are developed at the northern end of the resort near Neptune Park and to the south at Rudy Loop, a $200 RevPAR could become the norm for the finest Oceanfront hotels, such as the new Marriott Resort. Virginia Beach Oceanfront and the new Embassy Suites hotel is slated to open next year.

While some may be surprised to learn that resort hotels in Virginia Beach outperform most non-gateway markets in the United States, my associates and I are not surprised. With easy access to Mid-Atlantic and Northeast visitors, combined with a strong business base and government and contract government presence, the Oceanfront offers an ideal mix of business and leisure that gives market advantages that are usually only found in gateway markets.

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

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