NEW YORK — This year has been off to a strong start when it comes to hotel transactions, and while a future slowdown is likely, a renewed interest in urban hotels is finally drawing capital back to city centers, according to JLL Hotels & Hospitality’s Americas CEO Kevin Davis.
Although the movement of capital to urban hotels that cater to group and business transient travel isn’t surprising, Davis said that what surprised him was “the fact that the recovery of group business has been much stronger than we thought it would be early in the year.”
“2022 is the year of urban assets and the recovery of group and business-transient-oriented hotels,” he said in a video interview with Hotel News Now at the recent NYU International Hospitality Industry Investment Conference.
When it comes to specifics, Davis said, “we’ve seen a strong recovery and a lot of liquidity in New York City; Boston is another market where we’re seeing a recovery, and it seems like capital is starting to gravitate to other markets like Chicago, San Francisco, Los Angeles.”
Another “interesting phenomenon” around the current attraction of urban assets is buyer interest in union hotels; Davis cited New York City in particular.
“In many respects, a lot of investors prefer not to buy union hotels because of the work rules and the encumbrances associated with that,” he said. “But in this tight labor market … with union hotels you’ve got set wage increases, you may have long-term contracts in place. So you know what the wage increases are in the near term … and you have a ready, willing and able workforce, which is one of the big challenges facing the industry.”
While leisure properties remain attractive from a capital point of view, Davis said the short- and medium-term challenge of acquiring leisure is that thanks to incredibly strong demand and operating performance.
"The pricing has just gotten so aggressive that capital is starting to look for other opportunities, hence the interest in urban hotels and hotels that cater to group and business transient,” he said.
This trend is playing out in the coastal “smile” markets of the United States, which were the first to see travel demand return after the start of the pandemic. Davis said that while the great weather in this region as a whole is still attractive, investors are looking at smaller and potentially lower-cost areas around the traditional hot spots, particularly because the last two years have demonstrated how people can and are relocating and pursuing remote work.
Miami is an example where “pricing has run up pretty significantly,” he said. “So I’d expect you’d start to see some of the smaller markets in the ‘smile’ states along the Florida Panhandle, up the Atlantic Coast, like Wilmington, North Carolina, and markets like that, that are smaller.”
For more from JLL’s Kevin Davis, watch the video above.