Hospitality Investing News - Southeast September 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, July 2024 for hotels showed an overall decrease in RevPAR year over year and demand for rooms was 14,000 less than last year with ADR only up 0.5% according to Isaac Collazo, Vice President of Analytics at STR. Luxury, Upscale, and Upper Upscale hotels continue to perform, while economy and midscale properties continue to fall short. August is shaping up to be better than July, but still meager overall. Group travel is up year over year, not at 2019 levels, but trending up, nonetheless.

What can be a possible explanation for this is Travelers and consumers savings accounts getting the brunt of rising prices of everyday goods over the last two years. This is forcing consumers to be more conservative about how they travel, how much they travel, and for how long. A major bright spot of all this is that supply for new hotel rooms has substantially decreased. Given these trends, it isn’t necessarily allowing hotels to capitalize on increasing numbers but removes the culpability of adding insult to injury. The one to take that place is rising hotel operating costs outside of what has come to be commonplace, like labor. Line items, such as, insurance and property taxes are continuing to squeeze NOIs.

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.