JLL has released its Q3 2024 U.S. Hotel Investment Trends report, which offered insights on performance, industry challenges and hotel financing.
This quarter’s report highlights the following key trends:
Bifurcation in hotel performance persists as RevPAR growth slows
- While RevPAR remains up 14% vs. 2019, growth has stagnated, rising just 1% vs. 2023, driven by declines in domestic leisure travel amid contracting consumer savings.
- Hotels that cater to more budget-conscious travelers have been the most impacted, as well as those in leisure-heavy markets. Conversely, luxury hotels and those in urban markets have seen growth underpinned by the return of group, corporate and international travel.
Cost pressures build putting further strain on owners
- While RevPAR is fully recovered vs. 2019, profitability continues to lag driven by rising labor costs, particularly in urban markets.
- Look for this disconnect to spur some transaction activity in the coming months as cash-strapped owners face high debt costs and impending PIP requirements. Upcoming union negotiations in top markets will likely put further stress on some owners.
Transaction volume increases for third-consecutive quarter
- Fueled by several large transactions, including the second-largest single-asset trade in U.S. history, hotel liquidity increased for the third consecutive quarter in Q3.
- Despite a recent uptick, YTD volume and total activity remain below historical levels. The Fed’s recent and anticipated future interest rate cuts are cause for cautious optimism though more clarity needs to emerge for liquidity to meaningfully increase.
- Look for upcoming loan maturities, deferred CapEx and ongoing cost pressures should catalyze increased activity in the coming month, with private equity, HNWIs and select REITs likely to be the most active targeting hotels in high barrier-to-entry markets.
Hotel loan originations surge, with SASB/CMBS at the forefront
- Hotel loans continue to be favored among certain lender types given high credit spreads relative to other asset types. As financing conditions stabilize, lenders, including debt funds, banks, and select insurance companies, are increasingly deploying capital into the sector.
- Recent growth in larger transactions has been partly fueled by a rise in CMBS/SASB issuance which increased 3.7x relative to last year. Expect this capital to gravitate to assets in high barrier-to-entry markets that cater to a diverse customer mix.
