Investment

Hotel sector ‘resilient’

There was “no reason why the industry” could not recover from the pandemic, according to JLL’s Hotel Investment Sentiment Survey.

The group said that lender support and government support were the two most impactful measures in providing relief to the industry, as investors looked to a pickup in deals in the fourth quarter.

The survey reported that nearly 40% of investors felt that occupancy would need to be within 60% to 70% of 2019 levels for investment activity to improve.

Most now expect the industry recovery to take slightly longer, with up to a four-year timeline. However, extended-stay and economy hotels were outperforming and may bounce back sooner.

For the week ending 22 August, in the US the economy hotel class saw demand recover to 91% of the average weekly demand observed in 2019. But until a vaccine is widely available, JLL said that the lodging industry’s performance would remain stagnant - additional aid in the form of stimulus packages would be necessary to bolster it.

During the second quarter of the year, hoteliers focused on asset management and lender outreach as they sought to negotiate forbearance periods. The shift away from hotel acquisitions was evident in H1 2020 global transaction volume, with activity falling 51% relative to the same period in 2019.

JLL said: “With Q3 well underway, we anticipate another phase of loan restructuring and for activity to concentrate on rescue capital and note sales. This trend is supported by the HISS results, where investors indicated their appetite for hotel acquisitions has moderated. In fact, only 24% of respondents noted that they are active in the market, down from 40% pre-COVID-19. It’s expected investor sentiment will begin to shift toward deal sourcing in Q4 and into 2021 as the pipeline of hotels available for sale is revitalised and the opportunity to acquire assets at a significant discount to replacement costs becomes more pronounced.”

By year-end 2019, $3.7bn in closed-end private funds was raised globally in hotel-focused vehicles, representing a 35% compounded annual growth rate relative to 2015 levels.

The survey said: “With record level of dry powder on hand, private equity firms are preparing to pounce on distressed assets that come to market, driving the bulk of liquidity as activity picks-up. Foreign investors are also expected to be providers of liquidity, particularly in the US, as a sharp drop in the cost of currency hedging is making US real estate much more affordable. Notably, in the HISS, investors indicated that despite embracing a domestic-focused investment strategy over the next six months, Europe and North America remain top of mind for foreign hotel acquisitions.”

It concluded: “The truth is that the global lodging industry will continue to be tested in ways it never has. The industry is resilient and has overcome previous shocks. Hoteliers everywhere are strategically reopening properties and curating safe and thoughtful experiences for all guests. Despite the ongoing uncertainty in the industry, there is optimism that pent up demand to re-experience the world will gradually boost hotel performance across most markets.”