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Wondering what’s happening in the hotel investment space? JLL recently released their Global Hotel Sentiment Survey which provides key insights on hotel industry activity based on surveying different types of investors, predominantly Private Equity and Institutional Investors, Hotel Developers and Hotel Operators from all over the world.
We chatted with Jessica Jahns, Head of Hotels & Hospitality Research - Europe, Middle East & Africa, JLL Hotels & Hospitality Group, to learn more about the key findings.
1. Hotel investment appetite strengthens – basically there are more buyers than ever! 81% of investors plan to be net buyers over the next 12 months, which is the highest total ever recorded in the JLL survey (going back to 2000). While rising cost of capital has been the primary cause of limited investment in 2023, 39% of global investors expressed all-in cost of capital has increased since the start of the year. Yet, 70% of these investors expect rates to either remain the same or decrease significantly in the next 12 months, and therefore, hotel investors will be more active as debt costs stabilize.
2. Urban markets are back in fashion –– 84% of investors expect to deploy the bulk of their capital into these markets with London, NYC and Tokyo emerging as the most appealing. Urban markets, notably Tokyo, London and New York, are generating record high revPAR and they expect this to continue due to increasing group and business travel demand.
New York stands out as it has the most liquid global hotel market in 2023 with $2.5 billion in hotel transaction volume in the first nine months of the year. A large contributor to this was the 5th largest hotel transaction in history: QIA’a $623 million acquisition of the Park Lane Hotel in September 2023. Additionally, the market’s YTD August RevPAR is up 8.3% relative to 2019 and 86% of investors expect performance to grow even further over the next 12 months.
Tokyo’s hotel performance has accelerated, YTD RevPAR is down only 14.5% compared to 2019 (improvement of 41 percentage points). Factors contributing to this are increased international travel from South Korea and Taiwan and increased travel from Europe driven by the weakened Yen.
In London, RevPAR grew 20.8% YTD August relative to 2019. Occupancy is still lagging but investors expect RevPAR to continue to increase in the next 12 months. London will benefit from the weakening British pound which will also help attract foreign investment. Investment in luxury assets expected over next 12 months in this market.
3. Investors are gravitating towards luxury and select-service hotels –– two sectors on opposite ends of the spectrum. Why? “Both segments have benefitted from strong traveler demand, with the former driven by growth in global wealth and the latter from systemic shifts in the way consumers live, work, and play. As demand has risen, so too has profitability which has been a key driver of investment,” explains Jessica.
4. 61% of investors expect hotel pricing on a per key basis to increase over the next year. Pricing for luxury hotels has reached an all time high of $624,000 per key, expected to grow to $725,000 per key in next 12 months. Select service pricing has declined in the earlier quarters of this year but expect to return to pre-pandemic levels over the next year. As such, investors expect to invest in both of these, targeting luxury assets with in-place cash flow in urban cities and high barrier to entry resort markets, and select service hotels that require small cheques, respectively.
Final thoughts: Optimism as revPAR is UP over 10% and hotels remain an ideal hedge for inflation
The lodging industry has seen a remarkable 10.2% increase in global revPAR compared to 2019, with almost all regions fully recovering. Despite subdued global hotel investment due to macroeconomic challenges, investors express optimism and plan to be net-buyers in the next year, targeting opportunities in the hotel sector. The industry is expected to remain resilient, attracting increased investment over the next 12 months.