Hotel property investment is expected to pick up slightly in 2024, but there’s still stagnation across many sectors and desirable assets haven’t entered the market just yet.
According to the 2024 Lodging Industry Investment Council’s Top Ten Survey results, interest rate cuts for acquisition debt, property-improvement-plan mandates from brands during changes of hotel ownership, availability of suitable acquisition assets in the targeted internal rate of return and mortgage refinancing challenges pose the biggest threats to hotel investment this year.
Approximately 64% of survey respondents believe cap rates will be stable or increase slightly over the next 12 months. About 75% think the total dollar volume of U.S. hotel transactions will increase year over year in 2024 compared to 2023, with 30% of respondents saying that volume will increase more than 10%.
Debt isn’t a huge factor right now, as 79% of respondents said unfavorable debt refinancing terms haven’t affected their decision to sell a property over the last year. The sentiment on debt availability is similarly positive, with 94% of respondents expecting stability or improvement on that front in the next 12 months.
Hotels in the upper-upscale and upscale segments are the most coveted by investors at 44% and 19%, respectively, when the survey asked for investors' preferred target scale.
Of the top 25 markets, respondents selected Boston as the city they would most consider buying a hotel in. Tampa, Florida; Nashville, Tennessee; New York City and Phoenix completed the top 5. As for the markets respondents are not considering buying a hotel, St. Louis led the way with San Francisco, Minneapolis, Detroit, Chicago and Los Angeles following behind.
A total of 45% of respondents said over the next two years, extended-stay hotels will lead the way in new hotel development. Upscale select-service received 33% of the responses.
More than half of the respondents at 65% are cautiously optimistic that corporate travel is on a path to fully recovering to pre-pandemic levels, and 74% believe the group travel segment will achieve the fastest revenue-per-available-room growth over the next 12 months.