As 2025 begins, U.S. hotel traders face a complex landscape with opportunities that vary widely by location and property type.
That’s the view of Dan Peek, president of Americas Hotels and Hospitality at hotel brokerage JLL. Peek’s perspective is noteworthy, as JLL has helped transact more than $60 billion in hotel assets over the past six years.
Peek expects market performance to cycle from Sunbelt states to major urban centers as the post-pandemic recovery continues.
While Houston currently leads the US market, New York and Chicago have performed well recently, and this pattern could continue into 2025 as office attendance and business travel patterns continue to normalize. be.
different dynamics
The U.S. hotel trading market varies by location and hotel type. Properties under $50 million (typically select-service hotels) remain liquid because local entrepreneurs and local banks keep capital flowing.
Peek said trophy assets worth more than $250 million are also finding buyers, particularly among real estate investment trust REITs such as Host Hotels and professional investors such as Trinity.
But the core of the hotel transaction market, the $50 million to $250 million full-service hotels, has been largely taken over.
These properties face a triple whammy. They typically rely on institutional buyers who have better investment options elsewhere, typically require significant leverage at a time of high interest rates, and are expensive as construction and renovation costs have increased by 20-40%. capital investment is often required. 2019, Peek said.
Labor costs and property and casualty insurance are also rising, putting pressure on EBITDA margins even as profits recover.
So 2025 may not be a hot year for deals to happen. Many hotel owners still remember the high prices they received in 2019 and are hoping to sell based on that benchmark. Meanwhile, buyers are eyeing today’s rising interest rates, renovation costs, and rising employee wages, making it impossible for them to pay 2019 prices now that the hotel’s bottom line financial performance is softening. That’s what I think.
Many sellers of hotel assets are holding out, hoping interest rates will fall and asking prices become reasonable again. Peake is optimistic that rate cuts can continue. According to the Associated Press, Fed officials now expect to cut interest rates by half a percentage point in 2025.
Limited supply supports hotel rates
Mr Peek said the restraint on supply would support the performance of existing properties and encourage people to buy hotels. He agrees with CBRE’s forecast for average annual growth in supply of just 1% over the next five years, which is below the industry’s long-term historical average of 1.6%.
“The inability to develop new products is significant,” Peek said. While some markets like Nashville, Austin, and Miami continue to have construction cranes dotting their skylines, many major gateway cities face major development hurdles.
New York City is particularly constrained. Due to recent changes in local law, only one new hotel has been approved in Manhattan in 2024, Peek notes, including the luxury 130-room Little Nell scheduled to open in 2026. . Similar restrictions have hampered hotel development in other major markets, including Boston, San Francisco, and Los Angeles.
Limited new supply may support rate performance, even though U.S. hotel occupancy remains approximately 3% below 2019 levels. Peek points out that even with slightly lower occupancy rates, higher room rates often improve profitability for hotel owners.
Is DC a bright spot?
Looking ahead to 2025, Peek cited Washington, D.C., as potentially the strongest market due to the presidential inauguration, convention business, and federal workforce policies that may require increased attendance at offices. Ta.
He also cited the relocation of large companies including Boeing and Raytheon to the metropolitan area as a positive indicator for hotel demand.
“Follow the money,” Peek said. “In the past, all eyes were on New York because that’s where the money was, but big business leaders may spend a lot of time in Washington, D.C., again this year.”
wealth effect
When it comes to luxury hotels, Peake sees sustained demand, supported by rising global wealth.
“There are more billionaires and billionaires than ever before in the history of the world,” he noted.
There is a renewed interest in luxury hotel transactions from sovereign wealth funds and family offices, partly because the buyers themselves are users of luxury hotels.
The economics of luxury hotel development have improved with the rise of an often lucrative branded residential component.
As such, Peake expects luxury properties to enjoy strong demand in a market popular with affluent business and leisure travelers. At the same time, the budget and economy sectors are likely to continue to struggle, reflecting the differing fortunes of U.S. luxury and lower-end consumers.
Year-to-date performance of the Lodging Sector Stock Index
What am I looking at? Performance of hotel and short-term rental sector stocks within the ST200. The index includes publicly traded companies in global markets, including international and regional hotel brands, hotel REITs, hotel management companies, alternative accommodations, and timeshares.
The Skift Travel 200 (ST200) combines the financial performance of nearly 200 travel companies worth more than $1 trillion into one number. See more performance in the hotel and short-term rental finance sector.
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