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JLL: Global hotel industry likely to see full recovery in 2024

The lodging industry worldwide remained resilient in 2023, with RevPAR managing to achieve a full recovery. According to a recent analysis by JLL, RevPAR touched impressive levels by November 2023 and ranged between 94% to 121% of 2019 figures in all regions, with the Middle East, Europe and the Americas leading the way.

Although Asia Pacific is still trying to reach full recovery, positive trends indicate that RevPAR is likely to cross 2019 levels by Q1 2024.

Resort and leisure-heavy markets recorded a quick recovery, while performance in urban markets accelerated thanks to the rebound in business, group and international travel. According to the analysis, this year will see urban hotels, especially those in New York, London and Tokyo, generating significant investor interest.

Despite global RevPAR surpassing 2019 levels by 12%, there are more opportunities for further growth this year. Outbound Chinese travel, challenges such as delays in visa and airlift issues, has only touched 50% of 2019 levels. Chinese travel, however, is expected to perform better this year, benefitting greater Asia and gateway cities in the U.S.

Europe is expected to continue enjoying its popularity among domestic and international travelers through this year. Upcoming events, such as the Summer Olympics in Paris and Taylor Swift’s Eras Tour in the U.K. and Western Europe, are anticipated to drive travel intent to Europe.

Some other markets that can be watched are India, Turkey, Saudi Arabia and Spain. While the Global Business Travel Association expects business travel spending to reach a full recovery in 2024, leisure tourism will likely continue to be the primary driver of global hotel performance, JLL said.

This year, travelers will prioritize experiences matching their personal values. Hotels that convey their sustainability, wellness and authenticity commitments will be preferred, the report added.

Despite global RevPAR surpassing 2019 levels, there are opportunities for further growth in 2024.

TRANSACTION ACTIVITY

Global hotel investment volume fell in 2023, slipping to an all-time low since 2012 of $50.5 billion. Capital market dislocation and high-interest rates from many central banking institutions caused historically low portfolio deals and declines in average deal size.

The highest declines were seen in the Americas and EMEA, declining 29% and 43%, respectively, underpinned by high debt costs and persistent geopolitical uncertainty in Europe and the Middle East.

Despite hotel liquidity declining less in Asia Pacific, continuing turbulence in Greater China and macroeconomic volatility in the region pushed volume 13% less than its historical average.

With 1,404 global transactions taking place through 2023, transaction activity remained strong, recording the second-most activity in history. Deal size, however, plummeted to an all-time low at just $36 million.

According to JLL, investors faced difficulties financing high-dollar transactions driven by volatile global debt markets stemming from monetary tightening policies. Single-asset deals constituted 79% of hotel investment volume, the highest in history so far, while portfolio deals fell 59% (compared to historical averages) to $10.7 billion.

Select-service and luxury properties emerged as the top favorites, with investors leaning towards smaller cheque sizes and irreplaceable assets with in-place cash flow, respectively.

The biggest buyer of hotels continued to be private equity. The past year also saw a considerable rise in new investors venturing into the sector, with 19% of the year’s investment volume generated by first-time hotel acquirers, the highest portion in history.

DEBT MARKETS

Global hotel investment volume is expected to accelerate this year, surpassing 2023 by 15-25%, according to JLL. Strong fundamentals, impending loan maturities, deferred capex with property improvement plans being reinstituted and a high volume of private equity funds reaching the exit stage of their life span are expected to speed up transactions this year.

Hotels in top urban markets, like London, Los Angeles, Paris, New York, Sydney and Tokyo, are expected to garner the most investor interest.

Irreplaceable luxury hotels and select-service and extended-stay sectors will be favored and liquid this year, boosted by the growth in global wealth and continued blurring of lines between living and traveling.

Cash-rich Middle Eastern and Asian investors are likely to acquire quality properties in Europe and select markets in the U.S.

TOP THREE THEMES IN 2024

  • Resurgence of urban market performance and renewed investor interest: RevPAR in most of the largest cities sank by as much as 80%, with some reporting occupancies in the single digits. Now, urban hotel performance has improved, helped by the reopening of international borders and the return of group and business demand. Markets like London, New York, and Tokyo are once again some of the most sought-after for investors as RevPAR is expected to rise further in 2024. International travel will fuel urban market hotel performance and liquidity. The increase in international travel volume will strengthen urban hotel performance and is also expected to result in some growth in cross-border investment, which has been missing since the onset of the pandemic. Urban liquidity will help drive global hotel investment volume. In the coming years, flexibility will be critical for urban hotels to navigate the changing landscape.
  • Evolution and power of hotel brands for consumers: Global hotel brands have seen a considerable increase in the last two decades. Currently, there are 1.350 hotel brands globally, 13% more than in 2000. Around 20 more are slated to be launched in the next 12 months. Hotel brands have transformed from their conventional diversifying customer segmentation and now serve as a representation of a hotel’s value for travelers, operators, and investors. Hotel brands have expanded into new and non-traditional verticals to boost loyalty. Brand acquisitions offer the opportunity to drive shareholder value. Since the onset of the pandemic, global M&A hotel brand deals have surpassed $10 billion, nearly double the long-term average since 2012, highlighting the growing value proposition of hotel brands and the opportunity for further investment.
  • Rise in sustainable hotel investment and regenerative tourism: This year, travelers will prioritize experiences matching their personal values. Hotels that convey their sustainability, wellness and authenticity commitments will be preferred. There has been a rise in green financing options for hotels, with green bonds becoming popular. In the last decade, there have been $4.4 trillion of global impact bonds issued, with 66% issued in the last three years, JLL said. There has been an increased focus on responsible and regenerative tourism. While sustainable tourism focuses on reducing negative impacts, regenerative tourism furthers it by aiming to leave a lasting, positive impact on destinations or communities.
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