According to CoStar Group, more than $12.5 billion in hotel sales occurred in the first three months of 2022, the highest first-quarter figure since 2016.
Hotel for sale prices are rising, and the proportion of delinquent hotel mortgages has recently fallen to a new pandemic low.
Many investors, flush with cash but unable to find suitable investments, consider hotels to be less overpriced than stocks or bonds. They also believe that hotels will recover more quickly from the pandemic than offices or shopping malls, which are dealing with rising vacancies that could take years to fill.
While labor costs are rising, hotels are among the property types most able to adjust for inflation because they can reprice room rates on a daily basis. This is especially true for limited-service or extended-stay hotels, which have fewer employees.
According to Real Capital Analytics, hotel values increased 18 percent in March compared to the previous year. Property prices rose much faster than hotel profits, indicating that investors are optimistic about future travel demand.
Vacation-oriented hotels are in high demand, particularly in the Sunbelt, according to Mark Schoenholtz, co-head of lodging at brokerage Newmark. Rising income and savings have enabled more Americans to splurge on vacations.
This has increased hotel revenue in cities such as Miami, Orlando, Fla., and Nashville, Tenn., attracting investors. According to CoStar, Xenia Hotels & Resorts Inc. paid $329 million for the W Nashville hotel last month, the most expensive hotel sale in the city's history at $950,000 per room.
Nonetheless, business travel is well below pre-pandemic levels as more Americans become accustomed to virtual meetings. This has harmed hotels in cities such as New York and Chicago. New construction is also a threat to hotel owners in New York. According to STR, a hospitality data and analytics company, hotels in the United States are far less profitable than they were prior to the pandemic.
Economic difficulties may cause the recovery to be delayed. According to Jim Costello, chief economist at MSCI Real Estate, rising prices and mortgage rates may leave Americans with less money to spend on vacations.
Rising interest rates will also make hotels less appealing to investors, causing property values to fall. Cheap debt was a major reason why investors were willing to pay higher hotel prices in the last year. Higher bond yields may also make hotels appear less appealing in comparison, reducing investor demand.
To compensate for lost business travelers, some hoteliers are looking for new sources of demand. CitizenM Hotels, for example, wants to attract freelancers, long-distance commuters, and remote workers who need a place to stay when visiting their corporate offices. According to chief growth officer Ernest Lee, the company recently launched a subscription that guarantees customers a room for one night per month. It also intends to expand its office and meeting space.