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many feared in the earliest dire days of the pandemic didn ’ t materialize . It also helped that preceding the pandemic , the hospitality industry had enjoyed a solid stretch of excellent-tooutstanding RevPAR growth , operating profitability and property valuation .
Regardless , the chilling effect on transactions was clearly felt . According to the recently released Global Hotel Investment Outlook 2024 from JLL , global transaction volume had steadily risen from $ 54.2 billion in 2013 to $ 77.8 billion in 2019 , before slumping by more than half to $ 31.9 billion in 2020 .
Global transaction volumes rebounded in 2021 and 2022 to about $ 73.0 billion , according to JLL , but inflation and rapidly rising interest rates quickly nipped the resurgence in the bud , with transaction volumes descending to $ 50.5 billion in 2023 . And didn ’ t it seem like the bulk of transactions here in the U . S . in 2023 were mandatory refinancing of maturing loans ? Lest we forget , U . S . 10-year Treasuries leaped from 0.67 % in April 2020 to
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a peak of 5 % by mid-October 2023 .
SHIFTING PROSPECTS Hospitality remains one of the most stable and attractive commercial real estate sectors , with many entities , from family offices and high-net-worth investor funds to institutional equity , anxious to deploy assets into the sector . But what will break the transaction logjam and restore more normal market dynamics ? Clearly , a tempering of interest rates , which the Federal Reserve has indicated should be in the cards for this coming year , as well as continued strength in the U . S . economy , which was reported at 3.3 % growth in GDP at year-end 2023 , well above Wall Street projections .
Within this overall prospect for renewed transaction activity , we do see some shifting prospects , as well as familiar refrains . On one hand , it is getting harder to underwrite many of the drive-to resort markets that , somewhat paradoxically , flourished during the pandemic and immediately afterwards . As our living patterns readjust , performance and asset valuation are trending down for some of these properties .
However , group business was strong in 2023 and doesn ’ t appear to be slowing . This normalization between leisure and group / corporate travel should also help with occupancy , valuation and marketability of big-box hotels
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in some of our more distressed major urban markets . Business travel has also rebounded , and the impact of a new hybrid work model could push more of this price-insensitive demand to just three days a week — Tuesday , Wednesday , and Thursday — creating compression and the ability to push rates . On top of that , hotel closures and regulations on home sharing are positively impacting pricing dynamics in major urban markets .
MARKET DIFFERENTIATION In the world of hotel development , as to the Lodging Econometrics Q4 2023 U . S . Construction Pipeline Trend Report , construction pipelines remain robust in several key markets , while New York City has the greatest number of projects under construction with 44 projects representing more than 7,300 rooms . Other markets with the most ambitious construction pipelines following Dallas include Atlanta , Nashville , Atlanta , Phoenix and the Inland Empire of Southern California . Though not every project in the development pipeline comes to fruition , this is a reasonable indication of where major developers continue to favor investment .
On the other hand , we know that major urban markets , such as San Francisco , Chicago and Portland , remain challenged by post-pandemic social and economic reverberations and
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declining valuations . This may set contrarian investments in play , prompted by impending loan maturities . In such cases , owners may seek to avoid foreclosures by drastically reducing ask prices or working through auction sales .
In addition to pending loan maturities , many owners nationwide will be unable to make up for deferred CapEx expenditures , including funds deployed to keep properties solvent during the pandemic , another factor driving sales .
Last , investment “ congestion ” in major pipeline markets or high growth locales in states like Florida may prompt investors to more closely investigate other markets . Possibilities include cities like Detroit , already enjoying a robust boutique hotel market , where a new 600-room hotel adjacent to the downtown convention center has been recently announced ; supra-Texas locations , such as Tulsa and Oklahoma City ; smaller markets with potent governmental presence and excellent livability quotients , like Huntsville , Ala .; or nearby to already booming markets , think Austin and Nashville .
Overall , even with frustrated capital jumping up and down on the sidelines , and a softening of interest rates and continued strength in the U . S . economy , especially with respect to the global picture , deal volume should rebound in 2024 . It ’ s a sense of normalcy we all need — buyers , sellers , brokers and lenders , alike .
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Mar / Apr 2024 hotelsmag . com 51 |