According to a JLL analysis, supply expansion, demand for travel, and modifications to the financial environment will influence hotel performance and investor appetite this year.
According to commercial real estate giant JLL’s H1 2024 U.S. Hotel Investment Trends report, which Hotel Dive was able to access, the total amount of hotel transactions in the United States in the first half of 2024 was $9.2 billion, a decrease of around 23% year over year. However, hotel RevPAR remained “robust” in the second half, with growth potential particularly evident in metropolitan areas.
A number of factors, such as shifts in supply and travel demand, had an impact on hotel performance and investment in H1, and these factors will continue to influence investor activity throughout the year.
JLL examined supply growth, group travel, and lender preferences as well as other aspects that will influence hotel investment in the remaining months of the year and beyond in this research.
Gradual Increase In Supply
According to JLL, supply chain interruptions and high building costs are the key reasons why the U.S. hotel supply is growing at a slower rate.
Full-service hotels in urban areas and other high-barrier-to-entry markets have seen the slowest supply increase as development costs have “soared.”
An urban full-service hotel’s average hotel development cost per key increased to $742,000 in 2023, up 32% from 2019. The report states that the cost increase was driven by disruptions in the supply chain as well as growing labor and material prices.
It is around 39% less expensive to purchase an existing urban full-service hotel than to construct a new one, with the acquisition cost per key for the same hotel coming in at $456,000 in 2023.
The report stated that investors have a profitable opportunity due to the significant difference between the cost-to-build and the cost-to-buy. Due to this disparity, JLL projects that in the near to medium term, investors will give full-service hotel purchases in urban markets precedence over construction.
According to the survey, as hotel firms seek to expand their portfolios, the gap will also lead to a rise in brand acquisition.
Hilton assumed roughly 40 properties when it acquired Graduate properties in H1, a brand that focuses on college towns. By acquiring the Mr. and Mrs. Smith platform, Hyatt also expanded its portfolio in H1, and it is also rumored that the business is in talks to buy Standard International.
Resurgent Interest In Group Travel
According to the research, investors will continue to be drawn to metropolitan areas and other high-barrier-to-entry markets since they are seeing “robust RevPAR” from the rise in group, business, and international travel.
According to the research, urban markets produced the largest share of hotel liquidity in the first half of 2024, supported by RevPAR growth.