Experts confident on hotel transaction volumes in 2023 despite debt challenges

Investment experts across the hotel industry expressed optimism for the year ahead on increasing interest from investors despite the volatility of the debt markets.

Representatives from Madison Cairn, KSL Capital Partners, Pygmalion Capital, CBRE, Eastdil Secured and CBRE discussed their views on current hotel sector activity and their forecast for 2023 at the launch event for the new Hospitality Investor platform.

Experts noted that while the volatility in the debt markets hampered transactions in Q4 2022, Q1 2023 has seen more parties more willing to complete deals.

“Q4 was very difficult with interest rates moving all over the place so I think a lot of people - buyers and sellers - wanted to take a step back. However, there are now a lot of bilateral discussions in the market, which hopefully augurs well for transactions to complete towards the end of Q2 and Q3,” said Joe Green, senior director at CBRE.

Paul Kapiris, senior vice president at Eastdil Secured agreed. “We're seeing investors that have been sitting back, stepping back into the market in meaningful way.”

However, they noted the need for a re-examination of pricing to aid volumes.

“Vendors are still operating on yesterday’s pricing and they need to look at their pricing to reflect the new reality,” said Christophe Beauvilain, managing director at Pygmalion Capital.

“At the end of last year, buyers were especially nervous just because of the volatility. But now we've had a few cases where deals close to getting done didn’t complete because buyers weren’t happy with the discrepancy in pricing. I think to close the gap, there needs to be a little bit of movement on both sides,” Green added.

Commenting on the Q1 Hospitality Investor Sentiment Survey which suggested leisure demand will flatten in 2023 with the corporate segment expected to see more growth, Tina Yu, principal at KSL Capital Partners noted: “In certain markets, the business for leisure demand has been pretty strong. Certainly not seeing the astronomical ADR growth seen in 2022 but perhaps it was unsustainable to assume 2023 would grow another double digit on ADR.

“From what I’ve heard, people are maintaining rates and still able to maintain occupancy. So I’m not sure it’s so much as moderating as it’s returning to normal. Also, in global markets, I certainly think we shouldn't discount the fact that China travel will recover towards the end of 2023.”

Looking ahead, Aneil Handa, director at Madison Cairn noted that while the company is having to factor in much higher interest costs, it’s still on the hunt for good investments. “We’re looking at key cities in the UK. We quite like ground up development, purpose-built stock. It’s hard to come by in terms of build costs but we do think there will be land opportunities as well. We’re keen to buy high quality assets.”

Ana Ivanovic, executive vice president at JLL's Hotels & Hospitality Group added: “We’re quite optimistic for the year ahead. One of the concerns of investors was how sustainable the trading performance of 2022 was. But I think once they start seeing business and books remaining strong, they’ll realise 2022 wasn't the peak and this performance is hopefully here to stay. That will definitely help their underwriting.”