In 2024, U.S. hotel investment trends are being shaped by several key factors, including supply growth, travel demand, and changes in the lending environment, according to a report from JLL. Despite a 23% year-over-year decline in total hotel transaction volume, which stood at $9.2 billion in the first half of 2024, the sector remains robust, with urban markets showing strong potential for growth.
Slow Supply Growth
One of the most significant trends influencing hotel investment is the slow growth in hotel supply. This slowdown is primarily due to high construction costs and ongoing supply chain disruptions. The cost to develop a full-service hotel in urban markets has soared, with the average development cost per key reaching $742,000 in 2023—a 32% increase from 2019. In contrast, the cost to acquire an existing urban full-service hotel was $456,000 per key, presenting a lucrative opportunity for investors. As a result, JLL predicts that investors will prioritize acquisitions over new developments in the short-to-medium term. This trend is also expected to drive increased brand acquisition as hotel companies seek to scale their portfolios.
Group Travel Resurgence
The resurgence of group, corporate, and international travel is another key trend that is expected to drive hotel investment in 2024. Urban markets have seen the highest portion of hotel liquidity, supported by strong RevPAR gains. In the first half of 2024, cities like Phoenix, New York City, and Nashville saw significant hotel transaction volumes and notable RevPAR growth compared to pre-pandemic levels. The Phoenix market, in particular, saw a major transaction with Henderson Park's $705 million acquisition of the Arizona Biltmore. As group and business travel continue to recover, investors are likely to remain focused on urban and high-barrier-to-entry markets.
Lenders Favor Hotels
The lending environment is also playing a crucial role in shaping hotel investment trends. A boost in the issuance of commercial mortgage-backed security (CMBS) loans is expected to drive hotel deals in the second half of 2024. CMBS issuance volume in the first half of the year surpassed the total volume for 2023, indicating growing lender interest in the hotel sector. Lenders, including debt funds, banks, and select insurance companies, are increasingly favoring hotel loans due to their high credit spreads relative to other asset types. Additionally, the high volume of loan maturities coming due by year-end is expected to catalyze transaction activity, particularly for owners facing rising cost pressures or impending property improvement plan (PIP) requirements.
As these trends continue to shape the U.S. hotel investment landscape, investors and industry stakeholders should remain vigilant in monitoring supply growth, travel demand, and changes in the lending environment to make informed decisions.
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