The Hospitality Investor Sentiment Index plummeted to its lowest level since 2022 in the second quarter of 2026, as geopolitical and macroeconomic uncertainty took its toll on the real estate market. The research was the first carried out since the outbreak of hostilities in the Middle East and the effect has been dramatic.
The overall Index score has fallen from 59, which had held for the previous two quarters, to 46.6, reflecting growing concerns around profitability, deal activity and the cost of capital.
One thing worth noting is that the investors we surveyed are, by and largre, still positive about the long-term trajectory of travel, tourism and therefore hotel real estate, it’s just that outside events have forced them to confront their appetite for risk.
It’s a story you can see by looking at some of the biggest movers this quarter.
The rise in debt price and hurdle rate, alongside the fall in competition and opportunities suggests investors are underwriting more conservatively when it comes to potential deals.
It’s easy to understand why investor sentiment may have softened over the past 3 months. The last survey was carried out before the outbreak of hostilities in the Middle East, although the mood music at the time was downcast, the extent and duration of the conflict was not known.
The ceasefire that was announced in June has not held and while central banks have not increased rates dramatically, there is a sense that they will be forced to act further if the conflict continues.
Investors look resigned to the debt costs increasing as a result of this uncertainty.
All this will mean doing deals will become harder with the fundamentals needing to stack up before completing anything. Put simply, deals are just trickier to do in the uncertain environment. The bid-ask spread continues to be an issue which is necessitating more creative ways to finance transactions and get them done. Those investors with extensive hotel experience can set themselves apart as they are the ones with the operational understanding, that know which levers to pull.
The final chart I’ve pulled together covers the sentiment around profitability. Immediately after the pandemic, owners and operators were able to bask in the glory of top line growth without having to work too hard further down the balance sheet. Times have changed especially in areas like labour and energy, meaning that cost pressures are having a huge moment at the same time as many in the industry are questioning whether rates are sustainable.
Methodology
The Hospitality Investor Sentiment Index gauges the sentiment of equity investors active in the hospitality sector, by polling their opinions on a quarterly basis across consumer demand and operational performance, the demand for, and availability of stock, appetite for risk and the pricing of investment opportunities.
The key elements of the methodology are:
1. A questionnaire answered by senior decision makers, who are members of Questex’s Investor Council, representing the leading investment firms.
2. Responses are based on whether confidence levels are ‘higher’, ‘the same’ or ‘lower’ than the previous quarter based on a particular outcome.
3. A diffusion index method is used to arrive at the index score. The resulting index values are bound between 0 (all investors respond lower) and 100 (all investors respond higher), with a theoretical no-change mark at 50 (all investors respond ‘the same’ or equal proportions respond ‘higher’ as do for ‘lower’). Values above 50.0 indicate an increase and below 50.0 indicate a decrease. The distance from the 50 no-change mark signals the implied rate of change in the variable, the further from 50.0 the greater the rate of change.
Example: Take a movement from 60.0 in Q1 to 55.0 in Q2. Although the level of the index has fallen, it has nonetheless posted above 50.0 in both quarters. The correct interpretation is that the sentiment increased in both Q1 and Q2, but that the rate of increase was slower in Q2 compared to Q1.