A 'big disconnect' exists between hospitality market fundamentals and debt markets, as rising inflation stokes volatility. But a 'substantial tightening trend' could be on the horizon once the markets have better visibility into what's to come in the future.

The debt markets are slumping even as hospitality fundamentals are showing strength – exceptionally so for many assets, according to JLL. But "in the current environment, inflation and the Federal Reserve's response have taken center stage, despite the strong fundamentals," the firm's analysts note in a new report. "The credit markets fear that aggressive monetary tightening by the Fed could tip the economy into a recession, which has resulted in higher credit spreads and all-in loan coupons."

Balance sheet lending spreads have increased by 25 to 75 basis points, with SASB CMBS whole loan spreads broadening by more than 150 basis points. JLL also notes that the floating rate index SOFR, which tracks the federal funds rate, has ticked up by nearly 150 basis points since the beginning of the year. It may increase by between 200 and 250 basis points by the end of 2022, the firm predicts, and all-in loan coupons currently stand between 175 and 300 basis points higher today than in January, depending on lender type.