Safe Harbor in Choppy Waters: Hotels Resilient in Volatile Market

The hotel industry has had a remarkable recovery in the post-COVID era, marked by strong fundamentals, limited supply and increased capital inflows, making it an attractive investment option.

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Peachtree Group CEO Greg Friedman sat down with Bryan Younge, executive vice president at Newmark to discuss this remarkable recover and where the market is today. Bryan heads the hospitality practice group at Newmark and is a leading commercial real estate advisor. Below is a recap of his expert analysis and insights.

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Listen to Peachtree's discussion with Bryan Younge, EVP Newmark here.

Hotel Industry Comeback

‍The industry witnessed an unprecedented come back after the pandemic. 

Limited New Hotel Supply: Limited new hotel supply coinciding with high travel demand creates a favorable scenario for the existing hotel inventory to capitalize on the surging interest.

Investment Attractiveness: The hotel sector's resilience has increased its appeal as an investment vehicle, offering substantial returns. This is reflected in the significant capital and dry powder ready for investment in this sector.

Macro Challenges: Despite its success, the industry faces challenges like staffing shortages, wage growth and inflation.

Hotel Performance – Segment: Closely examined the performance across various segments of the hotel industry, including commercial, group, leisure, and extended stay, as well as different distribution channels. These channels are crucial for predicting occupancy trends and Average Daily Rate (ADR), especially in the current volatile inflationary environment.

Key observations include:

• The group segment, crucial for hotel revenue, experienced a significant decline during the pandemic but has recently fully recovered.
• Other segments, like online travel agents (OTAs) and FIT (Foreign Independent Travel) and wholesale channel, outperformed group and global distribution     systems (GDS) in terms of recovery.
• The FIT and wholesale channel had a substantial initial setback but rebounded strongly in spring 2022, reaching levels 70% higher than in 2019.
• Seasonality patterns, resembling a heartbeat monitor, show three demand spikes in mid-spring, summer, and October, indicating a return to normalcy and     balanced pricing strategies.
• Overall, the analysis suggests that while larger hotels faced challenges during the pandemic, smaller hotels remained more resilient due to less reliance on group bookings and other factors. 
• The current trends indicate a recovery and adaptation in the hotel industry's various segments.

Predictive Analysis: Discussed methods for predicting future pricing trends in the hotel industry, including analyzing room rates and booking adjustments, the personal savings rate and its impact on the travel sector, and the performance of different hotel market segments and their recovery post-pandemic.

Transaction Market: An equilibrium is emerging in the transaction market, with buyers and sellers reaching common ground and avoiding distressed pricing. This indicates a healthy market with growth potential and abundant opportunities. 

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