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Strong demand fundamentals for hotel sector

Global Market Perspective, February 2020

Demand for hotel rooms remains healthy across the globe. Given robust consumer confidence and sustained strong corporate travel spending, the number of occupied room nights continues to grow and is at record highs across many markets globally. However, supply growth is expected to eclipse demand in several mature markets in 2020, with hotel occupancy levels generally anticipated to be flat. Growth in hotel operating performance is therefore increasingly being driven by a rise in room rates.

Global transaction volumes mark a minor decrease in 2019

Investor sentiment for hotel assets continued to be strong in 2019, with global transaction volumes totalling US$67 billion, although this marked a slowdown of 6% on 2018. Weighing on investor sentiment are rising labour costs and overall operating expenses, which in many markets are growing at a faster pace than hotel revenues, leading to compression in profit margins. Also, due in part to the ongoing push from hotel brand companies to enhance amenities and brand standards, capital expenditure budgets for hotel owners are not showing any signs of lessening.

Following a notable softening in 2018, transaction levels in EMEA in 2019 were largely unchanged, while the pace of the U.S. market eased due to a drop in portfolio and entity-level deals. Asia Pacific posted double-digit growth in transaction volumes in 2019, with activity coming close to the robust levels of 2017.