'Cautious Yet Confident' Hotel Sector

Michael Tucker mtucker@mba.org

March 14, 2019


"Cautious yet confident" can describe current hotel investor sentiment, reported JLL, Chicago.

The firm's Hotel Investment Outlook predicted global hotel investment volume to likely reach $67.2 billion this year, very close to last year's $67.7 billion total. Total Americas transaction volume should match 2018's $36.5 billion figure.

"While there is anticipated moderating economic growth and geopolitical uncertainty, hotel property performance remains strong, travel and tourism is anticipated to reach another record year and investors seeking more yield are increasingly turning their sights toward hotels," the report said.

JLL Hotels and Hospitality Global CEO Mark Wynne Smith said a "significant" amount of debt and equity liquidity are bidding for lodging assets given the sector's healthy fundamentals. "Notwithstanding the more cautious backdrop, ongoing large portfolio and entity-level activity, hotels' attractive yield profile and record levels of dry powder will drive global hotel investment momentum," he said.

Debt funds are an increasingly important hotel financing source, JLL said, citing "robust" global fundraising activity for hotel investments. The report noted closed-ended private funds raised $28.8 billion globally in hotel-focused investment vehicles last year. "JLL anticipates these funds will pursue more large-scale investments to efficiently deploy capital," the report said.

Fitch Ratings, New York, said it expects two to three percent revenue per available room growth during 2019. "[But] RevPAR growth has the potential to be higher as improved business sentiment driven by strong demand, recent tax changes and a tight labor market holds its traditional positive correlation with business travel," Fitch said.

Developers are responding to investor confidence; the global hotel construction pipeline set a new record in 2018. Lodging Econometrics, Portsmouth, N.H., reported 13,573 hotel projects containing 2,265,800 rooms underway at year-end, a 7 percent increase in projects and a 6 percent increase in rooms year-over-year.

"The global [hotel construction] pipeline has been ascending for eight consecutive years after reaching its cyclical low in 2010," Lodging Econometrics said. The United States has the most projects underway with 5,530 hotel projects housing 669,456 rooms, just short of its 2008 record of 5,883 projects with 785,547 rooms. The U.S. accounts for 41 percent of projects in the global hotel construction pipeline.

New York City has the largest U.S. pipeline currently with 171 projects/29,457 rooms, followed by Dallas with 163 projects/19,476 rooms and Los Angeles with 147 projects/23,404 rooms, Lodging Econometrics said.

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