In a noteworthy turn of events, the global hotel industry is poised for a resurgence in dealmaking, with transactions projected to exceed $58 billion in 2024. Last year, the sector witnessed a decade-low in transactions, second only to the unprecedented challenges faced during the pandemic in 2020. However, optimism is on the horizon, fueled by a more favorable financing environment, according to insights from JLL Hotels & Hospitality.
JLL, a reputable investment advisory firm with a track record of facilitating over $60 billion in hotel asset trades worldwide in the last five years, provides a glimpse into the upcoming trends in its exclusive 2024 global hotel investment outlook report.
Drivers of the Anticipated Hospitality Transaction Boom:
- Private Equity Dynamics: Some private equity funds are approaching the end of their life cycles, creating a scenario where capital needs to be disbursed back to investors. The imminent need to deploy available capital is expected to be a driving force behind increased deal activity.
- Market Struggles and Asset Sales: Certain hotel owners find themselves in markets struggling to recover from the pandemic, such as San Francisco, Bangkok, and Mexico City. Faced with impending loan maturities, these owners may turn to asset sales as a strategic financial move.
- Deferred Capital Expenditures: The aftermath of the pandemic saw many hotel owners deferring essential capital expenditures. Now, faced with a backlog of necessary property improvement plans, they seek buyers willing to take on properties requiring significant upgrades.
The challenging landscape of 2023, with a mere $50.5 billion in transaction volume, prompted a cautious approach among buyers and sellers, largely influenced by rising interest rates. However, the prevailing belief that debt costs may stabilize or decrease has set the stage for a renewed wave of activity in the hotel investment landscape.
Hot Hotel Markets and Pricing Dynamics:
JLL identifies major gateway cities, including London, Los Angeles, Paris, New York, Sydney, and Tokyo, as focal points for heightened investor interest. These cities, strategically important in the global hospitality landscape, are expected to witness increased activity.
Despite a decline in single-asset prices per hotel guestroom key in 2023 – at $301,000, an 8% drop from 2019 levels – JLL anticipates pricing to strengthen. Sellers, driven by a desire to exit investments, and buyers, increasingly willing to pay premiums, are expected to inject more liquidity into the market.
London, in particular, may witness increased interest due to pent-up demand, with only $867.8 million worth of deals occurring last year, a significant 64% drop from the long-term average.
Property Preferences and Regional Dynamics:
Landmark luxury properties, select-service offerings, and extended-stay accommodations are anticipated to be the most sought-after assets. Investors in North America and Europe are expected to lead in transaction volume growth, while Asia’s recovery, although ongoing, is projected to lag behind its counterparts.
Major hotel groups are forecasted to engage in an above-average level of dealmaking. The slowdown in new hotel supply, attributed to rising construction costs and ongoing supply chain and labor disruptions, has led hotel groups to explore conversions of existing properties to their brands. However, intense competition for these properties may push hotel groups to seek net room growth through strategic acquisitions of portfolios.
The unfolding trends indicate a shifting landscape within the global hotel industry, with players adapting to emerging opportunities and challenges. The anticipated rebound in dealmaking signifies a proactive approach by stakeholders to navigate a path towards recovery and growth in the post-pandemic era.