Hotel performance continues to strengthen

The global hotel industry continues to thrive, benefiting from a strong travel sector that is driven not only by domestic leisure travelers but also a revival of international, business and group travelers. Global hotel revenue per available room (RevPAR) remains at elevated levels, recording an increase of 14.7% in year-to-date February 2024 compared to the same period in 2019. 

However, performance across global markets is not uniform. While activity in Europe and the U.S. continues to outpace other regions, contracting consumer savings are beginning to lead to a normalization of leisure spending, which is causing a slowdown in resort market performance. To date, this has been mitigated by strengthening urban travel driven by a surge in international travel and the return of business and group demand. In Asia Pacific, the reopening of all borders has resulted in rising sentiment, which has led to an acceleration of intraregional travel. We expect RevPAR in the region to reach a full recovery to pre-pandemic levels by the end of Q2 2024, with urban markets around the world likely to see meaningful inbound Asian travel accelerate throughout the year.

Future trends: Limited new supply will fuel conversions, partnerships and M&A

Short-term: Global RevPAR is expected to remain well above pre-pandemic levels through 2024. Resort-heavy markets in the Americas and EMEA will see a continued leveling off in growth, while urban performance improves further. Re-emerging intraregional and international travel in Asia Pacific is anticipated to provide an additional boost for urban market performance across all regions. The velocity of transaction activity should accelerate throughout 2024, catalyzed by private equity fund-life expirations, impending loan maturities and deferred capex. Must-have assets on opposite sides of the spectrum, including luxury and select-service hotels, are set to remain the most favored. A lack of new supply will also create opportunities for investors to acquire existing brand and management portfolios.

Long-term: Global hotel supply growth has been limited in the current high-cost environment. As a result, hotel brands have turned to conversions as a crucial driver of net unit growth (NUG) and shareholder value, with the number of conversions reaching a record high of 21,000 hotel rooms in 2023. This has led to an increase in conversions from other asset types such as office space and the emergence of conversion-only brands like Spark by Hilton. Brands are also pursuing growth strategies through M&A and partnerships, exemplified by Hilton’s recent acquisition of Graduate Hotels and Marriott’s partnership with MGM, enabling them to expand into new regions, hotel sectors and customer bases. The global hotel industry is at an inflection point as the construction pipeline begins to pick up speed. In the short to medium term, there will be significant opportunities for hotel brands and other investors to pursue growth via conversions, partnerships and M&A, which are likely to drive liquidity in the industry.