U.S. hoteliers have worked hard to come to terms with the new normal in a post-pandemic world. Lenders and hoteliers have adapted to the post-pandemic environment, adjusting to 11 rate hikes in the span of 22 months, fluctuations in the capital markets, and labor market challenges - all of which are a byproduct of the Feds unrelenting war against inflation.
All of this is further underpinned by global geopolitical conflicts in Ukraine and escalating conflict in the Middle East and the US entering what is sure to be a contentious US presidential election.
In the micro chasm of CRE, all headlines are on the office sector, which has imploded on itself even as work-from-home mandates have become normalized. Travel costs have escalated while advances in video conferencing technology increasingly replace the need to travel. With leases coming due on office spaces that have remained vacant since the pandemic coupled with rising interest rates, these factors set up the segment for a major correction and will test the balance sheets of many financial institutions in absorbing write-downs or losses due to non-performance.
All CRE segments have their own idiosyncrasies, and yet hospitality has been a beacon of optimism for investors in terms of cash flow, upside potential, and value retention in comparison to office, retail, and multifamily. Despite the headwinds, the Hospitality industry is still resilient even as inflation continues to be an ongoing concern. There is relief, however, as it seems to have tapered down from peak levels. An increasing number of markets are returning or surpassing 2019 Occupancy and ADR levels, and the data trends show that RevPar, ADR, and Occupancy may continue to grow at incremental levels nationwide. For 2024, CBRE is forecasting 2.3% ADR growth and 3% RevPar growth, with RevPar being 13% higher nationwide than in 2019.
Where the industry is feeling the economic turbulence in access to capital in relation to evolving underwriting standards as institutions adapt to CECL and regulatory capital guidance. It’s a bit ironic given the newfound market stability in numerous MSAs across the US post-pandemic; however, the financing landscape is having the most prominent effect on the industry. Trade volume had significantly slowed through 2023. Both buyers and sellers had held out from pulling the trigger, thinking that interest rate cuts would spur activity in hotel investment sales.
Read the full article: https://www.hotelexecutive.com/business_review/8024/hotel-investment-resilience-despite-significant-shifts-and-challenges
This article was originally published on https://www.hotelexecutive.com. Accessed on Dec 5, 2024.
