EVEN IN THIS SELLER ’ S MARKET , SOME UNKNOWNS REMAIN TO KEEP EXPECTATIONS SOMEWHAT MEASURED .
by ANDY COLEMAN , HEAD OF BERKADIA HOTELS AND HOSPITALITY
Nowhere has this been more apparent than in Florida , which is one of , if not the top , market for hotel investment in the United States . We have never seen more deals on the market or in closing than we have recently , and the region notched several record setting sales . Other popular markets include Southern California , coastal Carolinas , the Sunbelt and drive-toleisure or resort destinations , which have seen similar strength in transactions , owing to desirability among travelers and strong underlying fundamentals .
We ’ ve been buoyed by the confidence we ’ ve seen in the market , though it has created some hesitation among owners who are holding out for lofty pricing . Though we ’ ve seen many hotels trade for record prices , there are some who continue to hold on transacting to see if they can attain even higher values in the coming year following the performance of 2021 .
LOOKING AHEAD We expect the first half of 2022 will be among the busiest period for deals we ’ ve ever seen as an industry . Some of that activity will be owing to currently contracted deals that will slip into 2022 for final closing , but we ’ re already seeing a lot of activity in terms of listing and financings slated for the new year .
There is record interest for all deal sizes , portfolios and single assets from a wide bench of investors . The big institutional investors are targeting a smaller number of large transactions to deploy the greatest amount of capital to use their resources more effectively .
Of course , there are hurdles in even a strong market – some deal fatigue is creeping in as record numbers of investors are bidding on available deals and inventory challenges make it harder to place capital .
Overall , we ’ re as confident as ever that the right opportunities can be found to suit any investor strategy , provided they ’ re considering a broad pipeline of potential acquisitions and keeping in mind long-term goals .
UNKNOWNS REMAIN Though a record-setting year in many respects , we remain measured in our optimism and tuned into the major factors on the horizon that may impact our market .
Three top considerations come to mind for us as we look ahead : labor market challenges , the impact of inflation and evolving travel trends .
Labor scarcity has impacted all sectors , from food service to shipping , and the hotel industry is no different . Adequate staffing and associated cost pressure are top of mind for owners and operators as more and more travel picks up . So far , the industry has kept pace with demand , and has even gained some efficiency in operations , but it ’ s being closely monitored as continued pressure may start to impact occupancy trends and pricing strategies .
Inflation continues to make headlines , as the consumer price index registered a 6.2 % year-over-year increase in November , per the Bureau of Labor Statistics . Inflation can be somewhat beneficial to hotels , as it means the average daily rate goes up . However , increased cost on the labor and expense side can catch up to rate increases . With inflation comes the potential for rising interest rates , which could create upward pressure on cap rates . However , the investor pool remains incredibly well capitalized , and we have seen investors accept lower yield on quality deals . As a result , transaction volume should remain steady .
Travel has rebounded significantly , with leisure travel coming back first and business and convention travel coming back online in the third and fourth quarters . However , while evolving pandemic effects continue to drive greater domestic travel , it still remains to be seen if and how business travel will return in greater force as companies adjust to a post-pandemic environment .
Of course , these are just three of a number of factors that can affect the direction and trajectory of a sustained , long-term market recovery for hotels and which opportunities prove most favorable . Investors and owners who keep apprised of these factors and their evolving impact are most likely to be able to pivot to capitalize on the best market opportunities .
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