We're nearing the end of the year, which means in each interview I do these days, I like to ask sources what they feel owners and managers are most worried about going into 2024.
While I will have some full stories on some of these topics coming in the pipeline, I do want to highlight a few quick-hit topics in this blog.
Here's a compilation of what I've been hearing.
Volatility of Wages
Owners and managers, especially in some parts of California, have said they need to adjust wage strategies in real time during budgeting processes as administrative changes occur across certain states, according to Jeff Shockley, Dimension Hospitality's executive vice president of development and analytics.
Hotel workers in Anaheim, Irvine and Los Angeles have been picketing since July for better pay and benefits to help make up for increased rent prices in the area.
Unionized hotel workers in Southern California are asking for $5 more per hour the first year of their new agreement, then a $3 bump in their second and third year, Voice of OC reports.
However, the cost of labor is rising nearly everywhere and across all departments.
Owners expect a net-operating-income target, and managers will be pressured to deliver on that through labor cost management, productivity and efficiency as well as driving margins through the top line, according to Dimension Chief Operating Officer Joe Viglietta.
Pressure of Debt Markets
The debt markets continue to be a massive challenge for owners as commercial mortgage-backed securities loans come due in the next couple of years.
Owners will be focusing on how to get financing lined up for their existing hotels or considering selling their hotels if interest rates remain high.
Kevin Davis, CEO of the Americas for JLL's Hotels and Hospitality Group, expects there will be many highly motivated sellers, but there won't be a wave of assets selling at distressed pricing. Instead, the industry will see a "sprinkling" of deals.
"For a lot of that transaction activity, it's going to be masked as a 'regular' sale because an owner may say, 'My lender's not willing to refinance and/or I have to put cash in, I do have equity value here. So rather than ride this out, I'm just going to sell the asset and take chips off the table and move forward,'" he said during a recent podcast interview with Hotel News Now.
Federal Reserve Governor Michelle Bowman gave public remarks that the U.S. central bank will likely raise rates again "and hold them at a restrictive level for some time to return inflation to our 2% goal in a timely way," Reuters reports.
Markets That Accelerated Quickly
Some markets in 2022 experienced outsize growth, resulting in revenue-per-available-room growth that isn't sustainable, Davis said.
"What I think you're seeing is normalization of trends in those markets," he said. "Take a Miami or a Tampa, for example. I think everybody will acknowledge that the Miami hotel market in 2024 or the Tampa hotel market in 2024 is not going to be the market of 2019. The question is, if it's not the market of 2022, what is it? Is it some combination of the two? I think that's one of the things that investors are trying to figure out."
As an owner and manager, what are you most worried about entering 2024?
Send me an email or connect with me on LinkedIn.
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