Oracle Hospitality is the exclusive Technology Partner of the HI Investor Council
Despite a decline in the outlook for hotel demand and operating performance, the strong sentiment from our investor panel regarding the positive impact of a stable financial situation helped fuel a near 5% increase in the index score this quarter, according to the results of the latest Hospitality Investor Sentiment Index.
The index score increased by 2.8 pts in Q3 2024, to 62.9 as the results of the survey hit yet another high. The index score for this period, which has now increased by approximately 19.0 pts from a low of 44.3 in Q4 2022, represents a fundamental shift from the highly challenging investment environment of the last few years.
The frustrations associated with access to both equity and debt of only a year ago have now been almost completely alleviated with a number of lenders coming to market, as illustrated in the index score for the use of leverage increasing by a further 5.9pts this quarter, to 59.4.
This has had a knock-on effect on the investor sentiment regarding the price of debt (margin) in our survey, which has dropped by 11.1 pts to an index score of just 32.8. This is a 60.0 pts swing from a high of 93.2 in Q1 2023, when interest rates were in the midst of a seemingly unstoppable upward climb.
“Despite interest rates remaining high across a number of regions, with no clear outlook on when they are likely to recede, our Q3 2024 survey suggests a continued strong resurgence in the appetite for investment in hospitality,"said Patrick Whyte, Editor-in-Chief, of Hospitality Investor.
"Our investor audience have waited patiently for the debt markets to open up and now they are finally cooperating it’s time to push on, albeit with a revised set of expectations on the shape of the deal. For our investor audience, there is no time like the present."
You can download the full report here.
From one frustration to another
The lending environment is significantly more positive today than it was a year ago. This optimism is reflected in the index score for unallocated capital to deploy in hospitality (dry powder), which increased by 17.9 pts to 70.3 in Q3 2024. This peak score speaks volumes about the current positive mindset of our investor panel and reflects well on the outlook for the sector.
Furthermore, the index score for the focus on hospitality investment (relative to other asset classes/property sectors) has also increased this quarter, up by 2.9 pts to 68.8.
However, after a long wait for a more favourable lending environment, our investor panel is now frustrated by a lack of viable opportunities in which to place their funds. Our investor sentiment survey for Q3 2024 revealed that the availability of investable hospitality stock has decreased this quarter by 7.9 pts, bringing it down to just 53.1.
Furthermore, the competition to acquire hospitality investment opportunities intensified in Q3 2024, with the index score rising by 6.2 pts to 78.1. This increased competition has subsequently driven up prices, reflected in the index score for the price of hospitality investment opportunities, which surged by 8.2 pts to 59.4.
For fund raisers this has had a hugely positive effect on their raises, with Covivio Hotels' successful issuance of a €500 million green bond with a nine-year maturity, which was nearly four times oversubscribed. Additionally, sellers also find themselves in a strong position with private equity firms KKR, CVC, and PAI Partners are all vying to purchase B&B Hotels from Goldman Sachs, with a guide price of €3.5 billion.
A taste for the finer things
The latest investor sentiment survey reveals a decline in interest for limited-service hotels, with the index score falling by 7.0 pts to 51.6, indicating an ambivalence toward this segment.
Similarly, the focus on full-service hotels has decreased by 3.9 pts over the last two periods, yet this segment remains slightly more resilient with an index score of 54.7.
Even amid a general market decline, recent trends reveal that there is still strong investor confidence in a select area of the full-service market, with the luxury lifestyle segment presenting promising opportunities for returns.
Last quarter, Hilton acquired a majority controlling interest in Sydell Group and purchased the Graduate Hotels brand for $210 million. This quarter, Hilton expanded its portfolio by adding nearly 400 boutique hotels through an exclusive partnership with Small Luxury Hotels of the World.
Meanwhile, Accor has moved to partner with luxury hospitality company Our Habitas, known for its roots in the Burning Man Festival, through their Ennismore vehicle. Additionally, Accor and luxury hotel brand LVMH have formed a strategic partnership to accelerate the development of the Orient Express brand.
Our investor sentiment survey this quarter also revealed that our panel are also increasingly focusing on alternative accommodation types (extended-stay, hostels, co-living, etc.), with the index score for this category increasing by 7.1 pts in Q3 2024 to hit a high of 65.6. This high score reflects a growing interest in adjacent spaces as investors seek new and more innovative investment opportunities.