Technological Change as Reflected in Hotel Property Prices

John Corgel ()

The Journal of Real Estate Finance and Economics, 2007, vol. 34, issue 2, 257-279

Abstract: This paper investigates the effects of age on the sale prices of hotel real estate. Value erosion of commercial property due to the passage of time may be offset by renovation, although substantial follow-on investment usually occurs several years following construction. Obsolescence produces value losses during the post-construction period prior to new investment that result from technological change (Colwell & Ramsland, Journal of Real Estate Finance and Economics, 8(1), 47–63, 2003 ). A hedonic model is specified to allow age to measure the effects of obsolescence in hotel prices. Although the long-run obsolescence rate for hotel properties of 1.93%/year aligns closely with the rate estimated elsewhere for retail properties, the path of obsolescence through time shows some marked departures. Contrary to the theory and the empirical results from the retail real estate market, hotel prices do not reveal much more obsolescence in the years immediately following construction than later. Also, the age and sale price relation turns positive nearing the third decade of the lives of hotels indicating a vintage effect. Thus, a V-shaped obsolescence function emerges that either may be explained by a fixed-cost renovation expenditure function or a vintage effect produced by the demand for surviving assets. A series of tests of hotel brand-specific obsolescence rates reveals considerable variation in these rates among seasoned properties, perhaps an indication of a convex renovation expenditure function and sequential follow-on investment. Copyright Springer Science+Business Media, LLC 2007

Keywords: Property prices; Hotel real estate; Economic depreciation (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1007/s11146-007-9011-4 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jrefec:v:34:y:2007:i:2:p:257-279

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11146/PS2

DOI: 10.1007/s11146-007-9011-4

Access Statistics for this article

The Journal of Real Estate Finance and Economics is currently edited by Steven R. Grenadier, James B. Kau and C.F. Sirmans

More articles in The Journal of Real Estate Finance and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().