Examining Trends Impacting the Hotels & Hospitality Industry
By Andy Wimsatt, Head of Hotels & Hospitality, Berkadia
The commercial real estate industry has faced challenges in recent months due to rising interest rates and economic uncertainty. This has resulted in a slowdown of transaction activity across all sectors, including hotels and hospitality.
Despite these conditions, deals are still being made at a moderate pace. When looking at trends within the sector, there is cautious optimism for the future.
Market Trends Within the Hotel Industry
Despite economic uncertainty, lodging fundamentals remain stable currently. Inflation can benefit hotels as they set their rents daily and can adjust revenues accordingly. However, inflation also leads to higher costs for operating supplies which could result in increased prices for consumers and potentially reduced demand for hospitality services.
While occupancy rates are strong now following recovery from 2020’s pandemic impacts on travel restrictions worldwide; labor shortages have been an ongoing concern among hotel leaders as well as other industries that require consumer-facing jobs without remote work options available.
To combat this shortage,
hotels must offer competitive wages,
flexible schedules,
and expanded benefits to attract top service workers who may need long commutes.
Fortunately,the supply pipeline remains manageable due to high building costs coupled with borrowing constraints; investors also have opportunities below replacement cost levels when acquiring properties.
However,borrowing costs continue impacting transaction volume significantly this year since most investors do not want acquisition debt exceeding cash-on-cash yields earned by each property;
exceptions include assumable debt priced lower than current interest rates or seller-financed acquisitions along with some all-cash purchases.With “higher-for-longer” signals from The Fed,Berkadia expects no changes through mid-2024 regarding these dynamics remaining unchanged then too.
Reflecting on 2023: An Informative Year For The Industry
As we look back on 2023,it’s clear that it was an informative year filled with unprecedented challenges caused by market uncertainty and lingering pandemic effects.
Despite these obstacles, the hotels and hospitality sector has shown resilience, adaptability,and innovation.
Key trends that emerged in 2023 include the adoption of new technology such as AI to enhance guest experiences,
a renewed focus on sustainability and responsibility,
and a passionate workforce excited about opportunities in 2024.
