Hospitality Investing News - Southeast August 2024

After almost two years of rising interest rates and interest rates being held higher than expected for longer than expected, the Fed is finally giving the nod to potential interest rate cuts in their September meeting. While this is positive news on the capital markets side, this could show to have no bearing on hotel performance side. Even in desirable markets in the southeast US, 2024 is still seeing the effects of softening ADR from continued decreases in occupancies. Ultimately, this is showing a decrease in performance anywhere from 10%-20%. Much of this is due to, travelers and consumers continuing to feel the increasing price of everyday goods, which is showing to slow down in recent months, but overall reports are showing a combined inflationary increase in prices since the pandemic anywhere from 20%-35%. This is forcing consumers to be more conservative about how they travel, how much they travel, and for how long. Many hotel owners are waiting on interest rate cuts, the election, and/or even further cooling of inflation feeling any or all of these variables may ease whatever underlying issues they are experiencing and result in a more favorable selling environment. The hotel industry coming off a big surge in property valuations. Many were bullish on the travel industry with remote work becoming more commonplace and younger populations favoring experiences over material possessions. This created an environment where buyers and capital markets were more apt to buy into aggressive projections. While, not all, many of these projections didn’t pan out as expected. There was no way to estimate the extent of slowdown, nor the extent expenses would increase, ultimately shedding light on the real culprit of lowered hotel values- lowered net operating incomes (NOI). The good news, wages have just started to increase greater than inflation. It will take some time for the overall system to stabilize from all the increases in inflation, but as wages continue to rise at a pace greater than inflation consumers will go back to adding to their savings, rather than depleting their savings accounts, and increasing their confidence on traveling as they used to. When or how long that will take, is anybody’s guess, but a positive trend, nonetheless.