Despite lower purchase volumes this year, hotel investors are keen to buy, with luxury assets one of the most sought-after portfolio additions. High-end hotels are appealing and liquid, two essential draws for investors. In addition, the surge in international travel this year has driven profitability steadily upwards.
Challenges and opportunities for hotel investors
The latest Global Hotel Investment Sentiment Survey from JLL reveals that hotel investors have faced several challenges this year. As a result, global investment volumes have been “sluggish” and totalled US$32.5 billion in the first nine months of 2023.
JLL reports that investment levels have suffered from “widespread capital market dislocation” as buyers battle high debt costs from ever-increasing interest rates. Consequently, the volume of investment so far in 2023 is the lowest for the last decade.
However, the survey reveals that hotel investors remain confident that interest rates have hit a ceiling and will start to decrease. On the back of this prediction, the vast majority (81%) expect to be net buyers of hotel assets over the next 12 months. This percentage is the highest ever in JLL surveys.
Luxury assets are the main draw
Amid debt cost challenges, two types of hotels have emerged as the most appealing: luxury assets and select-service hotels. JLL reports that the massive uptick in international travel has boosted both types. In addition, luxury hotels have benefitted from the increase in global wealth and select-service establishments from digital nomad travellers who stay in hotels for extended periods.
Both sectors have experienced steady price increases since 2017, with the most pronounced in luxury assets. Pricing for high-end hotels almost reached its highest ever earlier this year, with a per-key price of US$624,000. According to the survey, hotel investors believe this figure will rise to US$725,000 over the next year.
For its part, the select-service segment has fallen slightly in price this year. However, survey respondents expect per-key pricing to return to pre-pandemic levels in 2024. JLL reports that this type of establishment has a lower average deal price than luxury assets. As a result, it typically attracts lenders and appeals to lower-leverage buyers.
What’s in store for global hotel investment?
The survey comes to a bullish conclusion, particularly in light of recent RevPAR levels. It reports that global RevPAR has soared by 10.2% in the last year compared to 2019. In addition, all regions except APAC have fully recovered since the pandemic.
As a result, hotel investors “remain optimistic with most expecting to be net buyers over the next year”. As a result, JLL says the global hotel industry “will remain resilient and attract increased investment over the next 12 months”.