Hospitality Investing News - Southeast December 2024

More interest rate cuts, and now with post-election clarity upon us, we are seeing the industry continue to stabilize back to the fundamentals of travel and tourism after a few years of good and bad anomaly performances. This means the fourth quarter will probably continue to reflect anemic growth for hotels outside the upper end of the chain scale. More than likely, the top 25, 50, or even 100 markets will, in the short term, continue to capitalize on corporate and group demand. Long term, where applicable, we will even see leisure demand as it eventually begins to recover. Economy and lower-end hotels should see gains as well, however, most likely not at the levels we saw after COVID. Probably somewhere between 2022 and 2023, and in some cases – even 2019. However, economy and midscale hotels uniquely have a new challenge: rising costs. And not just the usual labor, breakfast, and supplies, but also insurance and property taxes are taking a toll on returns. Previously, this would be reflected in heightened ADRs to counterbalance these expenses. However, data is showing that heightened ADRs are resulting in decreased occupancies. While all hotels are faced with increased costs of operations, economy and midscale hotels haven’t really seen how the market is going to be affected by the new premium economy and midscale brands coming out, or when the development pipeline picks up as the Fed lowers interest rates.