ALIS 2024 Key Insights: The State of the Hotel Industry - By Charles Oswald

The Americas Lodging Investment Symposium has just concluded, and Aperture Hotels CEO Charles Oswald is back with key takeaways from this year’s meeting of hotel owners, investors, and operators.

1. Hotels are the darling of CRE. Delivering the highest levered returns on capital, hotels are an increasingly attractive investment category that outperforms other commercial real estate investments. CoStar reported that hotel stocks finished strong, indexing up +10% for December and up nearly 40% for the year.

2. Revenue growth will hold steady for the next three years. RevPAR growth will be led by ADR gains, supported by low supply growth, averaging above 4% for each of the next three years.

3. Overall demand is trending down, but quality assets are performing extraordinarily well. Following strong Q1 growth, US room demand was flat or down for the last 8 consecutive months, per STR/CoStar. The decline is led by declines in the economy (-5.1%) and midscale (-1.9%) classes which were more impacted by pandemic supply closures, soft manufacturing industry, and the conclusion of pandemic-era direct cash stimulus payments to individuals. When we exclude economy-class hotels, demand grew 2.4% across all other classes, though tapering, and that growth was led by +6.7% growth in the Upper Upscale classification.

4. Americans are traveling. 859 million TSA screenings in the December 12-month period exceeds the pre-pandemic high.

5. International inbound travel growth is outpacing outbound. According to the United States Travel Association’s biannual U.S. travel forecast, prepared by Tourism Economics and released Wednesday, international arrivals to the U.S. are projected to surpass 2019 levels in 2025, while business travel volume is expected to fully recover by 2026.

6. Weekly travel patterns are normalizing. Compared to 2019, weekend travel is softening toward historic levels while weekday travel is continuing to recover. Meanwhile, commercial travel patterns suggest that a 3-day workweek is strengthening in popularity.

7. 23 of the Top 25 markets grew ADR. Like demand, US ADR declined in eight of the last nine months. But 23 of the Top 25 markets showed growth. Following Las Vegas, Washington DC and New York rounded out the top three in ADR growth due to large per diem increases in DC and New York’s recently enacted Short-Term Rental Registration. The NYC registration requirement resulted in the removal of 15,000 unlicensed short-term rentals at the same time as the city is leasing 16,000 rooms across 140 hotels to accommodate unhoused migrants.

8. Higher for longer. Recent economic data has softened the consensus outlook for interest rate cuts until later this year. Aside from some owners with underperforming floating-rate bank loans, most owners are not being compelled to sell under lender pressure. Others face maturing debt, funding gaps, tougher underwriting standards, and higher interest rates that will force them to sell.

9. Transaction volume declined 50%. Stymied by high interest rates, fourth quarter hotel transaction volume dropped over 50% vs. a year ago. The notional consensus is that values will modestly improve with moderating interest rates, and transaction volume will increase in the second half of the year. Some predicted that LifeCos (life insurance companies) will be the most competitive lending source in 2024, while others suggested that 5-year CMBS is attractive.

10. But some deals are getting done. The deals getting done are generally supported by a backstory, are trading below replacement cost, and have small property improvement plans (PIPs).

11. Supply growth remains well below historic trends. In a market where supply growth has been slow and many hotels have fallen behind in CapEx spend and refresh, newly opened hotels will have a significant market advantage over their unrenovated competitors.

12. Labor continues to be the #1 issue in the hospitality industry, even as the spread between job openings and total unemployed eases to 2.5 million, vs. 6.0 million during this same time last year. AHLA reports that turnover rates are continuing to rise.

13. Customer acquisition costs (CAC) are continuing to rise. CAC can be reduced through the use of data analysis, automated marketing processes, and online presence and reputational management.

14. Do your diligence. Identifying the right management company for your deal might be the single most important due diligence for a hotel owner. Informed hotel owners have switched out their management company to Aperture Hotels twelve times in the last year alone. Let us know how we can help you!

Charles Oswald

Charles serves as CEO of Aperture Hotels, a fast-growing third-party hotel management company, and is a member of Cayuga Hospitality Consultants. He specializes in domestic US hotel operations, though has also touched numerous other industries. His experience covers Leadership, Turn-Key Hotel Operations, Management Approvals (Hilton, Marriott, IHG, Hyatt, Choice, and Wyndham brands), Hotel Rebranding / Repositioning, Revenue Management, Capital Improvement Planning, Underwriting and Market Studies/Feasibility, Capital Raising / Creating Successful JV Partnerships, Off-Market Hotel Deals, Hospitality Asset Management, Strategic and Financial Planning, and dealing with matters of Corporate Governance. Connect with Charles on LinkedIn.