Hospitality Investing News - Southwest September 2024

Summer travel indicators signal tailwinds. While the pandemic-era domestic leisure boom faded last year, some renewed momentum emerged during the summer months of 2024. According to the TSA, the 10 busiest domestic air travel days in history all occurred between May and July of this year. Correspondingly, average hotel occupancy at airport area hotels nationwide was up by 80 basis points during the second quarter of 2024 compared to the same three months of 2023. In addition to that surge, the AAA estimated that roadway travel of 50-plus miles during the July Fourth holiday weekend grew by 8 percent from 2019. Interstate area hotel occupancy was down relative to the second quarter of last year; however, that roadway travel boost, as well as stable fuel costs, may aid momentum.

Trading activity is muted but could accelerate. Softer performance trends late last year and into early 2024 created additional headwinds for the hotel investment market. Deal flow during the first half of this year was down by about 25 percent from the opening six months of 2023 and almost 40 percent below the equivalent 2014 to 2019 average. The mean cap rate rose to 8.8 percent for trades completed over the past year ending in June, up 60 basis points from 2022’s low point. That may signal buyers and sellers coming into alignment, as higher cap rates should allow more deals to pencil. Recent downward pressure on the 10-year Treasury rate and expectations for interest rate cuts beginning in September are also lowering the cost of debt and reopening the yield spread relative to cap rates. This should help narrow the buyer/seller expectations gap going forward.