Half of U.S. Hotel Investors Plan to Buy More This Year – Hotel News Resource

Half of U.S. Hotel Investors Plan to Buy More This Year

2024 U.S. Hotel Investor Intentions Survey

Executive Summary

U.S. investors have generally positive sentiment about the hotel market this year, with half of those surveyed planning to increase their hotel investments in anticipation of higher total returns and lower prices. Strengthening the balance sheet and difficulty in securing and servicing debt are the top challenges for those who plan to buy less this year.
Central business districts (CBDs) and resorts are the most favored location types, while upper-upscale and upscale/upper-midscale are the most popular chain-scale targets in 2024. We expect RevPAR growth of 3.1% for urban locations from increased group, business and international travel. We also expect that steady leisure demand and modest ADR gains will support 1.6% RevPAR growth for resort locations.
Increased borrowing costs and labor expenses are the biggest challenges for hotel investment this year, followed by higher insurance costs. These costs likely will lower margins. While we expect traditional hotel demand and pricing may be tempered by competition from alternative sources like cruise lines, short-term rentals and outdoor lodging, only 30% of those surveyed consider this a challenge.
Major urban markets like New York and Washington, D.C. are expected to have the strongest hotel market fundamentals in 2024, along with leisure-focused locations like Miami, Charleston and Austin. Given limited new hotel supply and restrictions on short-term rentals, New York City is 2024’s most attractive investment market, followed by Miami, Charleston and Boston. Perhaps because more distressed assets could enter the market and make pricing more favorable, investors indicated interest in San Francisco—a market that has lagged in recovery since the pandemic.

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Half of investors expect to increase their investments in hotels in 2024.

CBRE Hotels Research conducted a Global Hotel Investor Intentions Survey in early 2024 to assess the climate for hotel investment. In the U.S., hotel investor sentiment appears robust, with half of the respondents indicating that their allocation to hotel acquisitions would increase. Roughly 35% of respondents expect acquisition activity to remain the same as in 2023, while less than 16% expect it to decrease.

Figure 1: U.S. Investors’ Buying Intentions

Source: U.S. Hotel Investor Intentions Survey, CBRE Research, 2024.

Despite high interest rates, many investors remain eager to acquire hotels. More than 70% of those surveyed said they are targeting value-added and opportunistic hotel investments. Value-added acquisitions offer an opportunity to reposition assets by adding rooms, redesigning interior spaces or adding amenities to increase the property’s returns and long-term value.

Figure 2: Types of Assets to Be Targeted in 2024

Source: U.S. Hotel Investor Intentions Survey, CBRE Research, 2024.

Among those investors planning to increase their hotel acquisitions this year, nearly 40% said lower prices and better total return prospects were the primary reasons why. More than one-third of investors cited more distressed-asset opportunities and decreasing debt costs as reasons to increase hotel acquisitions.

Of those investors planning to reduce their allocation to hotels this year, 64% said that strengthening their balance sheets and difficulty in securing and servicing debt were the primary reasons why.

Figure 3: Reasons to Increase Hotel Asset Allocations in 2024

Source: U.S. Hotel Investor Intentions Survey, CBRE Research, 2024.

Figure 4: Reasons to Decrease Hotel Asset Allocations in 2024

Source: U.S. Hotel Investor Intentions Survey, CBRE Research, 2024.

Investors were split on whether to buy or sell globally branded hotels. More than half plan to dispose of such assets, while over one-third plan to acquire them. Similarly, more investors plan to dispose of independent hotels than those who plan to acquire them.

A much greater percentage of investors plan to sell and buy branded hotels this year, compared with independent hotels. This is not surprising given that branded properties account for more than 70% of total room supply. Representing 30% of room supply, independent hotels showed a more bearish weighting of divestitures to investments at 186%, while globally branded hotels had a slightly lower weighting at 165%.

Despite limited supply, only soft brands (those affiliated with a global brand but retaining an independent brand name) and those eligible to be converted to other brands upon sale had a higher percentage of investors favoring acquisitions over dispositions. Soft-branded hotels were more than two-thirds as likely to be targeted for acquisition.

Figure 5: Most Likely Acquisition/disposition Targets in 2024

Source: U.S. Hotel Investor Intentions Survey, CBRE Research, 2024. Resort & CBD Assets Most Favored

More than 40% of investors said that resorts were the most attractive location type, followed by CBD locations by 26% of respondents. Driven by the ongoing recovery in inbound international travel and strong performance of the meetings and group events segment, we expect RevPAR growth to outperform in urban locations this year. We also forecast that consistent leisure demand and modest ADR gains will support 1.6% RevPAR growth for resorts.

Figure 6: Investment Attractiveness by Location Type

Source: U.S. Hotel Investor Intentions Survey, CBRE Research, 2024. Upper-upscale Assets Seen as Most Attractive

Upper-upscale assets are most favored by 42% of investors, followed by upscale/upper-midscale by 40%. Luxury assets are most favored by 31%, while midscale/economy properties were favored the least, which could be due to RevPAR declines last year.

Figure 7: Investment Attractiveness by Chain Scale

Source: U.S. Hotel Investor Intentions Survey, CBRE Research, 2024.

Given concerns about rising labor costs and lower margins, it is not surprising that 40% of investors favor the acquisition and development of limited-service hotels, followed by full-service hotels by 32% of respondents. Despite strong interest in extended-stay hotels during the pandemic and the recent increase in extended-stay offerings by major hotel brand families, these assets are the the top choice for just 21% of investors.

Figure 8: Investment Attractiveness by Service Offering

Source: U.S. Hotel Investor Intentions Survey, CBRE Research, 2024. Borrowing & Labor Costs of Most Concern

Increased borrowing and labor costs are the biggest challenges for hotel investors this year, followed by higher insurance costs. All of these are expected to lower margins. Investors were least concerned about competition from alternative sources like cruise lines, short-term rentals and glamping.

Figure 9: Most Challenging Issues in 2024

Source: U.S. Hotel Investor Intentions Survey, CBRE Research, 2024. Urban & Leisure Markets Seen as Top Performers

New York City and Washington, D.C. are expected to have the strongest hotel market fundamentals this year, followed by Austin, Charleston and Miami.

Figure 10: Expectations for Top-performing Hotel Markets in 2024

Source: U.S. Hotel Investor Intentions Survey, CBRE Research, 2024.

New York City is the most attractive market for hotel investment, given its limited supply and restrictions on short-term rentals. Despite continuing to struggle, San Francisco is an attractive investment possibility for 2024. Leisure markets like Miami and Charleston are also attractive for investors.

Figure 11: Most Attractive Markets for Hotel Investment in 2024

Source: U.S. Hotel Investor Intentions Survey, CBRE Research, 2024. Who Took Part in Our Survey

The 2024 CBRE U.S. Hotel Investor Intentions Survey had over 130 respondents with primary responsibility for investing in the United States. The majority (61%) were developers/owners/operators. More than half had at least 75% of their assets under management in hotels and 84% had between $5 billion and $10 billion of assets under management. The survey was conducted in early 2024.

Figure 12: Percentage of Respondents by Investor Type