Hospitality Investor Sentiment Index highlights areas of positivity for hotel sector in 2023.
A bounce back in demand for corporate accommodation and growing potential for limited-service hotels mean hospitality investors are ‘mutedly optimistic’ about the year ahead.
The survey of senior decision makers at the world’s leading investment firms, revealed a 19-point uplift in the index score to 59 when asked about their confidence in demand growth in the corporate sector.
A rebound for corporate accommodation contrasts with diminishing confidence in leisure accommodation. The index score for Q1 2023 rose just over one point to 46.6 (from 45 in Q4 2022) suggesting that leisure’s post-Covid recovery may now have peaked.
Overall, the Questex Investor Intentions Index, which measures the sentiment of hospitality real estate equity investors managing €321bn of real estate assets, showed a small bounce back in confidence on Q4 2022 with an overall index score of 48.9.
Developers, owners and operators shared the most positive outlook, with 44% projecting profit growth to stay the same or increase over the next 12 months. Only 22% of investors projected an increase in profit growth in 2023
One area of increasing interest for the investor community is limited-service hotels. The Investment focus on alternative accommodation types, including hostels, extended stay and co-living, jumped by 5.4 pts to an index score of 62.5 in Q1 2023, with 89% of respondents expecting their focus to be the same or higher in the next 12 months.
While the survey found that funds continue to have a significant amount of allocated capital to deploy into all areas of hospitality, concerns about interest rate policy, geopolitical risk and the availability and competition for opportunities are concerning investors from all regions and continuing to impact investment decision-making.
Joe Stather, VP market lead, operational real estate at Questex Hospitality, said: “Sentiment for the coming 12 months has rebounded strongly, based on the Doomsday scenario that many investors predicted back in the fourth quarter of 2022. Their reasons for greater optimism include a more predictable macroeconomic outlook, an expectation of stronger corporate accommodation demand, and a tentative reopening of the debt market (notwithstanding the cost of leverage). The heightened focus on asset optimisation for those with current hotel holdings is set to remain, and the weight of capital targeting hospitality, including subsectors such as serviced apartments and hostels, is substantial such is the relative appeal of the asset class.
“There was hope that buyer and seller expectations would converge in early 2023, resulting in greater deal flow, but with a sense that inflation and interest rates may have peaked, owners and their lenders may hold-out for a return to cheaper money and a possible recovery in asset values in the months ahead – we’ll be eagerly awaiting the results of the Q2 survey!”