The hospitality sector entered 2023 on comparably strong footing, with generally robust performance metrics supporting the sector. Domestic leisure travel has returned in force, lifting national occupancy above its long-term average and propelling daily room rates well beyond pre-pandemic figures. Business and international travel are also trending in positive directions. A larger convention slate this year should aid weekday hotel demand, while fewer border restrictions ease trips between countries. The horizon is nevertheless not free of headwinds.
Travel costs have been on the rise, led by generally higher airfares, fuel costs and hotel rates. While pent-up wanderlust has so far compensated for still-high inflation, the potential for a recession-driven pullback in spending remains a credible risk this year. Scenic destinations that have outperformed in recent years may begin to revert to traditional demand levels, while larger gateway markets and business hubs could get a lift . Businesses have suggested they may boost business travel this year, which, combined with additional international visitation, is poised to drive recovery in many of the nation’s larger hospitality markets.
Improving property fundamentals have restored broad confi dence in the hotel sector among investors. Trading was constrained at the start of the year, however, by the Federal Reserve’s aggressive series of interest rate increases and the resulting jump in capital costs. Higher cap rates on average than in other property sectors may give investors more options amid higher debt costs, and as interest rates stabilize, buyers should be better able to pursue opportunities among both stabilized hotels and those poised for reimagination.
To help commercial real estate investors capitalize on the nuances of the current climate, Marcus & Millichap presents the 2023 Hospitality National Investment Forecast. As always, our investment brokerage and fi nancing specialists across the U.S. and Canada are at your disposal, providing street-level investment guidance to empower your decisions.
In this report:
- National Economy
- National Hotel Overview
- Capital Markets
- Hotel Investment Overlook
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