Market Trends of Hospitality Real Estate Sector
Increasing Investments in the Hospitality Real Estate Sector
Many investors are interested in the hospitality real estate sector despite the disruptions caused by the pandemic. Further growth in investments is supported by a great number of first-time investors stepping into the hospitality sector for better yields and to diversify their portfolios.
According to industry sources, investments in the Indian hospitality sector are likely to exceed about INR 19,000 crore (USD 2.3 billion) over the next two to five years.
Furthermore, increasing investments through hospitality Real Estate Investment Trusts (REITs) leverage the market growth by acquiring and managing hotels, motels, luxury resorts, business-class hotels, etc. Some of the major REITs include Apple Hospitality REIT, Summit Hotel Properties, Park Hotels & Resorts, Hersha Hospitality Trust, and Pebblebrook Hotel Trust,
The United States was the country with the highest number of hotel construction projects in the pipeline as of the fourth quarter of 2022, with a total of 5,465. Meanwhile, China came second in the ranking with 3,581 hotel projects in the pipeline.
The United States Experiencing Demand in the Hotel Industry
Despite worries of recession, bank failures, and a liquidity crisis affecting the macro economy, US hotels continue to outperform expectations. In Q1 2023, US hotels exceeded Q1 2019 (pre-pandemic) RevPAR levels by 13%, based on data from STR. Room rates continue to be the primary driver in this performance recovery.
While occupancy in Q1 2023 was still down 2.1 points from the same period in 2019, ADR increased 17%. Leisure travel continues to be strong, even though growth levels are slowing. Individual business travel and group business slowly re-emerged, contributing more significantly to future growth expectations.
According to the industry experts' expectations, the annual occupancy for US hotels in the year 2023 increased slightly less than in the November 2022 outlook, increasing to 63.4%. With slowing growth in occupancies for the balance of this year, now expect average daily room rates to increase 4.1% for the year, with resultant RevPAR up 5.5%. It is approximately 114% of pre-pandemic levels on a nominal dollar basis.
Demand growth from individual business travel and groups is expected to offset a softening in leisure demand, with outbound international leisure travel outpacing inbound, given the relative strength of the dollar. With flattening occupancy levels in 2024, growth is expected to come almost entirely from ADR, with an expected year-over-year increase in RevPAR of 3.5%. It is approximately 118% of pre-pandemic levels.
