- According to JLL’s Global Hotel Investor Sentiment Survey, global hotel investment volume has been sluggish in 2023, sinking to a 10-year low (excluding 2020) of $32.5 billion through the first nine months of the year.
- JLL attributes historically low portfolio transactions and declines in average deal size to economic volatility and capital market dislocation.
- Despite the challenges, the global lodging industry is expected to remain resilient and attract increased investment over the next 12 months, with 70% of investors expecting interest rates to either remain the same or decrease.
At this point in 2023, almost all regions within the hotel industry have fully recovered, with Asia-Pacific continuing to play catch-up but surging since the reopening of China at the beginning of the year.
Despite this overall robust performance, global hotel investment volume so far in 2023 has been subdued, due in part to widespread macroeconomic headwinds, including high debt costs and capital market dislocation, according to JLL’s survey.
“Global hotel investors report that rising cost of capital, namely debt market volatility, has been the primary driver behind limited investment activity over the past 12 months, with a whopping 39% expressing that their all-in cost of capital has increased by at least 250 basis points since the start of 2023,” the report reads.
Investors remain optimistic, though, with 81% expecting to be net buyers over the next year, the highest total ever recorded since the inception of the annual survey in 2000. According to the findings, investors expect activity to be strongest in urban markets, due to increased group and business travel demand, with London, New York City and Tokyo topping the list. Some 84% expected to deploy the bulk of their hotel investment capital in urban markets over the next 12 months.
This reinforces findings from Deloitte’s 2023 European Hotel Industry Survey, in which hospitality leaders and investors named London the most attractive European city for hotel investment in the year ahead.
The JLL survey also found that, over the next 12 months, hotel investors are expected to target irreplaceable luxury assets and select service and extended stay sectors, which have benefited from growth in global wealth and shifts in work-life balance, respectively.
“Pricing for luxury hotels reached a near all-time high of $624,000 per key through the first nine months of the year, and investors expect it to grow substantially over the next 12 months to $725,000 per key.”
On the flip side, select service hotel pricing has declined 7.6% so far this year to $163,000 per key. But investors are expecting the sector to return to pre-pandemic levels over the next year.
Responses for the survey were collected from August to September 2023. The survey is a compilation of 8,200-plus data points from hotel investors on future hotel operating performance, pricing expectations and investment appetite.