Despite the challenges broader capital markets experienced in 2023, the global lodging industry demonstrated resilience as revenue per available room soared, surpassing pre-pandemic levels by 12%.
According to Capgemini’s World Wealth Report, the number of high-net-worth individuals (HNWIs), defined as those with a net worth of at least $1 million, has grown 10.7% since 2019, reaching 21.7 million individuals globally at the end of 2022. Though HNWIs represent less than 0.3% of the world’s population, they contribute nearly 70% of global spend on luxury travel. As such, it is no surprise that luxury hotel demand has skyrocketed.
Driven by strong fundamentals, rising yields and high discount-to-replacement cost, luxury assets were among the most favored by investors in 2023. In fact, luxury hotels drove 21.4% of global single- asset hotel liquidity in 2023— the second-highest portion since 2015.
Single-asset luxury hotel pricing reached $640,000 per key in 2023—the highest pricing in global history. There were
32 $1-million-plus-per-key transactions—the third most all time—and five $3-million-plus- per-key transactions—the most of all time.
Urban luxury assets were the most liquid in 2023, accounting for 62.3% of single-asset luxury liquidity, the highest portion since 2015. Cities, including Barcelona, Boston, London, New York, Sydney and Tokyo, all saw increases in luxury hotel investment volume in tandem with accelerating fundamental performance.
LOOKING AHEAD
As the global lodging industry continues its post-COVID recovery, look for luxury hotels to lead the pack.
From a transaction standpoint, strategic luxury opportunities will continue to be highly coveted among investors as they are rarely brought to market.
As international travel continues its recovery, so, too, should cross-border investment, which means that luxury hotel liquidity will likely accelerate even further with foreign buyers, namely sovereign wealth funds and family offices, likely to be the most acquisitive. Look for must-have assets across Europe and in select U.S. cities to be the largest recipients of foreign capital in 2024.
Luxury hotels, particularly in gateway urban markets, stand to benefit significantly from the continued recovery of international travel. Not only do international travelers typically stay longer and spend more, which should aid in the continued growth of ADRs, but there is also a strong correlation between inbound international arrivals and urban luxury hotel occupancy.
Expect institutional investment for luxury hotels to accelerate further as debt market volatility persists, albeit improving, and luxury yields continue to trend at historic highs. Look for cash-rich Middle Eastern and Asian investors to acquire quality assets across Europe and in select U.S. markets, such as Miami and New York.
In Asia Pacific, European investors are expected to deploy capital into Japan, Singapore, Melbourne and Sydney.
There is an optimistic outlook for the global hotel industry in 2024. As consumers continue to spend on travel, hotel performance will accelerate further with urban markets likely to lead the charge. Brands that prioritize sustainability, wellness and authenticity will have an advantage. As capital market conditions improve, most investors expect to be net- buyers over the next 12 months.
As such, traditional luxury hotel brands are expected to seize on this growing demand and expand into new verticals as they look to own the entire traveler experience. This, in turn, should create new investment opportunities as investors look to capture an increased share of the growing high-net-worth population.
While the number of assets expected to come to market is still to be determined, market fundamentals for luxury hotels will continue to draw an increasing number of investors in the coming year.
Perspective piece contributed by Stephany Chen, EVP, global hotel desk, JLL Hotels & Hospitality Group