Despite the Federal Reserve's aggressive monetary policy aimed at controlling persistent inflation, during the first half of 2024, the U.S. economy continued to demonstrate resilience. While strong growth in many subcategories of Gross Domestic Product (GDP) including consumer and government spending, investment, exports, and employment has many optimistic, the economic outlook is tempered by global geopolitical risks including ongoing wars in Europe and the Middle East. Although the U.S. economic outlook remains positive, signs of a softening consumer are mounting within lower-to-middle-income households. And while recession concerns remain, heightened anxiety that the U.S. will experience two consecutive quarters of negative GDP has significantly diminished. Furthermore, an uncertain U.S. presidential election appears to be leading consumers and businesses to curtail spending for the balance of the year.
Through Q2 2024, the U.S. lodging industry is operationally sound, with growth being fueled by corporate transient, group, and inbound foreign travel, while domestic leisure demand continues to wane as Americans continue returning to travel overseas. Group trends remain solid, helping generate a base level of demand that further supports pricing power for hotel operators. While strong and with building momentum, foreign inbound travel to the U.S. remains below pre-pandemic levels. It is interesting to note that since 2000, U.S. presidential election years have seen Real GDP growth decline by 110 bps on average versus the prior year. In each of the past four U.S. presidential election years, both demand growth and RevPAR growth slowed from the prior year. Elevated development costs coupled with restricted availability of construction financing which if obtainable is expensive and continues to diminish the feasibility of new hotel supply, a phenomenon which is anticipated to continue during the foreseeable future. Finally, hotels in several lodging markets including New York City are benefiting from restrictions that have been imposed on short-term rentals, effectively reducing such competition.
Publicly traded hotel companies are leveraging their platforms and loyalty programs to fuel growth, as evidenced by several recently announced acquisitions and/or strategic alliances/partnerships. Examples include:
- Hilton's $210M acquisition of the Graduate Hotels brand from AJ Capital, who will retain real estate ownership of the existing portfolio
- Hilton's marketing partnership with Small Luxury Hotels of the World (SLH) network of independent hotels.
- Hilton's marketing partnership with AutoCamp, an outdoor hospitality company known for its custom Airstreams and glamping-style tents.
- Hilton's acquisition of a majority stake in Sydell Group thereby adding the NoMad brand to its portfolio.
- Marriott International's strategic alliance with MGM Resorts International.
- The Rio Hotel & Casino in Las Vegas, NV, which is undergoing a multi-phased $340 million transformation, has joined Hyatt Hotels Corporation's World of Hyatt loyalty program.
The LWHA Q2 2024 Major U.S. Hotel Sales Survey includes 90 single asset sale transactions over $10 million, which totaled just over $4 billion and included approximately 14,350 hotel rooms with an average sale price per room of $279,000.
- In comparison, the LWHA Q1 2024 Major U.S. Hotel Sales Survey included 66 sales that totaled just over $2.5 billion and included approximately 10,700 hotel rooms with an average sale price per room of $230,000. Comparing Q2 2024 with Q1 2024, the number of trades increased approximately 36 percent while total dollar volume grew roughly 63 percent and sale price per room rose 21 percent.
- By further comparison, the LWHA Q2 2023 Major U.S. Hotel Sales Survey included 84 single asset sale transactions over $10 million which totaled $3.1 billion and included approximately 12,100 hotel rooms with an average sale price per room of $257,000. Comparing Q2 2024 with Q2 2023, the number of trades increased by approximately 7 percent, while total dollar volume grew nearly 29 percent and the sale price per room rose by roughly 9 percent.
Although the lodging sector is experiencing strong fundamentals, compared to recent history, the cost of debt remains relatively high, which continues to dampen sale transaction activity. With this said, bid/ask spreads appear to be easing, resulting in some "wind in the sails" of hotel sale investment volume. Additional noteworthy Q1 2024 observations include:
- The five largest U.S. hotel sale transactions by Total Sale Price include:
- Turtle Bay Resort Kahuku, HI – 450 rooms, $725M or $1,611,111per room
Buyer: Host Hotels & Resorts, Inc. (NASDAQ: HST), Seller: Blackstone.
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