Extended growth cycle continues to bolster travel demand

Global Market Perspective, August 2019

Robust consumer confidence and continued strong corporate travel spending are supporting demand for hotel rooms, with the number of occupied room nights continuing to grow and at record highs across many markets globally. Leisure travel trends are exceedingly strong, and this is driving visitation to gateway cities and more far-flung resort destinations alike.

With supply growth expected to eclipse demand in a number of mature markets in 2020, hotel occupancy levels are generally expected to be flat in the year ahead. Growth in hotel operating performance is increasingly being driven by a rise in room rates. In the U.S., hotel operators are expected to be in a solid position to maintain the same pace of room rate growth in 2020 as in 2019.

What is weighing on investor sentiment is rising labour costs and operating expenses overall, 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.

Global transaction volumes largely holding steady

Investor sentiment for hotel assets remained strong in the first three quarters of 2019, with transaction volumes totalling US$44 billion. In line with expectations, transactions volumes globally marked a minor slowdown of 6.8% on the same period in 2018.

The EMEA region had already marked a notable softening in 2018, and figures in 2019 have been holding close to last year’s total. Asia Pacific has seen double-digit growth in transaction volumes thus far in 2019, with Singapore, Japan and China representing the main drivers of activity.

The U.S. market continues to be liquid, notwithstanding that the first three quarters of 2019 have seen a slowdown. While markets are generally moving in line with expectations, the pace of economic growth is slowing and becoming more uneven which will impact asset underwriting.