CHICAGO — Hotel asset managers are somewhat optimistic about the operating environment heading into 2023, but the looming threat of a recession and ever-increasing interest rates are putting a damper on their enthusiasm.
A new survey from the Hospitality Asset Managers Association painted a somewhat rosy picture for the industry, but board members for the organization say their outlook has soured considerably in the roughly two weeks since results were collected.
Roughly 80% of respondents said they are "actively pursuing acquisitions," but HAMA leadership now say a lack of financing and increasing interest rates pushed almost everyone out of that market.
The survey also reflected a remarkably low level of distress, with just 5% saying they've been in a forced sale situation or handed back keys to a lender or expect that to happen soon. Board members now believe distressed assets could become more prevalent with the high cost of debt and waning patience from lenders.
One thing that hasn't changed since the completion of the survey is continued worries about the labor environment, which HAMA members have been ranking as their top challenge since well before the pandemic.
More than 80% ranked labor availability as the obstacle they are "most concerned about right now," making it the top issue followed closely by costs. Less than half as many people voted for the third most popular option: a possible drop-off in hotel demand.
HAMA board members said labor shortages have been felt across the board, not just at the line level.
Speaking at HAMA's fall conference, Carly Thorp, vice president of asset management for hospitality at McWhinney, said the labor issues are felt "in everything from housekeeping all the way up."
"I mean, if you're looking for directors of finance, good luck," she said. "It's really across the board at every level."
Thorp said hotels continue to see employees leave for other industries, which she would've expected to slow or stop by this point. She also doesn't believe that a downturn in demand will be enough to stem labor shortages.
"We're still understaffed, so if you cut our demand and our margins, yes we'll suffer a little bit, but at the same time, we're still more scared to have to limit inventory," she said.
Matt Arrants, principal at The Arrants Company and president of HAMA, said he's hopeful hotel companies will try to hold on to staff in the face of a downturn.
"I'd like to hope that we learned some lessons from COVID, so that we're going to be a lot smarter about it," he said. "I think we're still going to look to our operators to react to the situation on the ground and be thoughtful. In the past, we were more reactionary and treated labor like a faucet we could turn on and off. Now we know labor is a much more important asset."
Other Survey Results
Asset managers believe that hotel performance could continue to improve going forward, with roughly half of members saying revenue per available room will return to 2019 levels in the U.S. in 2023. The second most popular response, at roughly 40%, was RevPAR would return to 2019 levels by 2024.
That optimism is somewhat muted when looking specifically at hotels in top 25 U.S. markets, with slightly less than half of HAMA members expecting RevPAR to hit 2019 levels in those markets by 2024. A little more than 30% believe those markets will see a full rebound in 2023. Nearly 60% expect a full RevPAR rebound for hotels outside the top 25 markets in 2024.
That trend follows a split between asset managers' expectations for full-service and select-service assets in 2023, with only a slight majority of respondents budgeting for RevPAR increase at full-service assets but two-thirds planning for increases at select-service hotels.
Thorp said the industry overall was buoyed by strong rate growth in 2022, so how much pricing power persists will determine how strong 2023 turns out to be.
That might also be affected by how much high-spending travelers leave the U.S. after a prolonged period of low international travel, Arrants said.
"We were really afraid [in 2022] that the affluent traveler would go to Europe," he said. "And a lot of our operators were convinced that people had two sets of vacation plans. They had Europe booked and they had the U.S. booked."
Thorp said she saw the same phenomenon but it actually helped maintain pricing power.
"We [already had] the higher [average daily rates], and the occupancy came — just not from the markets that originally booked them," she said. "We had a lot of backfill that was actually last-minute group. They were calling in asking, 'Do you have room?' Not even 'What's your rate?'"