Oracle Hospitality is the exclusive Technology Partner of the HI Investor Council
We recently gathered together a select group of investors to discuss the ins and outs in our Q2 Investor Council meeting. Below are a selection of the key nuggets from that discussion.
1. Have we hit the bottom?
There are a number of factors that indicate we’re now at, or at least approaching, the bottom of the market. On the back of Covid-19 and the boom in travel, the industry has continued to see growth. Underwriting has, however, been tricky as it’s always about assessing risk for the last two years and it's been nearly impossible to do so.
At the same time buyers had to deal with interest rates and didn't believe, or know how far, performance could go. The sellers didn't want to sell on the downside as performance continued to increase so there was a wide bid-ask spread. So have we reached the bottom? Probably. But that's just because of the factors that made underwriting more risky, are starting now to dissipate. Those that own assets, primarily funds need to sell them, those who've raised money primarily funds needs buy them.
2. Geopolitical concerns still around
Conflict in the Middle East and Ukraine still has the potential to disrupt the travel and tourism industry both on the macroeconomic side of things and on consumer decision-making. It closes off countries or closes travel, suddenly hotels that were expecting to do incredibly well in 2024 are now going to have a bad year.
3. Revpar growth proving resilient
Coming into this year many people expected topline growth to moderate but as we approach the midpoint that doesn’t seem to have happened. Those hotel investors focused on leisure have good visibility heading into the summer and things are looking fairly good. Southern Europe especially is seeing continued double-digit growth,
4. Lifestyle increasing in popularity
The big hotel brands have been falling over themselves to add new lifestyle brands to their portfolio as the consumer moves away from the traditional to embrace something more experiential. There’s also huge potential for lifestyle in markets like Asia Pacific and the Middle East, where the profile fits perfectly. On the flip side though what does this mean for the full-service, midmarket hotels that did not get turned around after they were bought following the financial crisis?
5. PBSA proving an attractive alternative for investors
Hotels didn’t suffer the yield compression of other asset classes and the NOI margins especially in Europe are good. For those investors with broader portfolios PBSA remains popular and many are being super aggressive when it comes to acquisitions. It is tough to close deals on residential because of the yield environment.
6. Labour issues around, but market dependent
In certain locations like the Balearics hiring and remaining staff is still a challenge, partly because the natural supply is so constrained by geography. There is also an issue with finding suitable accommodation for them.