Hotel Investment Sales Post Quarterly Decline

While the U.S. economy continues to expand and is currently a major driver of global growth, inflation has recently ticked up after falling considerably from a peak of 9.1% nearly two years ago.  Many now perceive that in the near term, the U.S. Federal Reserve will not reduce borrowing costs, and some anticipate a resumption of raising rates by early 2025.  Unless a severe economic downturn occurs, interest rates are likely to remain relatively elevated for an extended period. A tight labor market and strong household net worth has led to remarkable resilience in U.S. consumer spending as Americans continue to enjoy experiences and travel.  With this said, modest employment growth is anticipated as companies in certain industries are reducing headcounts while others are scaling back hiring.

Robust revenues, limited new supply, and significant capital inflows continue to fuel the U.S. hotel industry’s extraordinary performance in the post-COVID era.  However, cracks may be beginning to emerge with March 2024 RevPAR declining on a year-over year basis for the first time since February 2021.  Group business demand, which was a laggard to rebound, is now healthy, while corporate individual travel maintains modest positive momentum.  While leisure demand continues to thrive, the segment is challenged with many Americans traveling abroad coupled with a slow return of inbound overseas visitors particularly from Asia. During the near-term, moderate U.S. RevPAR growth is expected while operating expenses are projected to rise at a rate greater than inflation. Fundamentals of select urban markets including Boston and New York rival pre-pandemic levels while other downtown cores including Chicago and San Francisco have runway to recovery. Finally, numerous hotels including many that are physically and/or functionally obsolete are being acquired for conversion and/or redevelopment to affordable, migrant, student, or supportive housing which represent a reduction in supply.