Reasons to Sell in the Hospitality Market
Recession fears have now shifted from a “what if” to a “how deep” mindset for hotel owners across the country. The hotel industry is in the middle of an upswing of rent rate growth while the broader economy is preparing for the onset of a recession. This unique condition poses some troubling areas when looking at the macro numbers for the overall economy. Leisure demand numbers have increased exponentially this past year, but hotel executives are unsure how stable this demand is and if it will remain in the test of time. Business travel is coming back at a much slower rate than anticipated, however it is still ahead of what it was in 2019. The rate of business travel will have the biggest impact on whether the hotel industry dives into a deep downturn along with the rest of the economy or if it returns to pre-pandemic levels. Experts have seen no signs of a slow down in business travel, nor have they seen the spike that would increase their confidence in the hospitality sector.
A top priority for hotel executives across the country is to mitigate whether inflated room rates will be sustainable for the foreseeable future. The continuous demand for a vacation getaway is straining hotels over the nation because staffing levels remain tight. There is not adequate help to accommodate the increasing demand of guests wanting to go on vacation after two years of travel restrictions. This is where the top issue arises; it is challenging to offer a full quality service experience to guests if they are low on that service. However, though these concerns are valid, experts have forecasted a stabilization in booking rates by the end of 2022, ensuring that hotel employees will soon have much needed relief.
Hotel Price Discount Trends
Based on the average transactions over the past decade, around 70 percent of all hotel sales take place within six months after the property was listed for sale, according to CoStar. The price at which a property is sold is crucial to sellers and ensures that the selling price remains as high as possible. Based on hotel sales tracked by CoStar, discounts to the original listing price have been slightly lower the past five years compared to the 10-year average. This recent data can mean one of two things: either sellers and listing brokers were better at judging prevailing pricing sentiment or buyers have been more eager to transact and are not as concerned with discounts compared to the past. This is extremely promising for hotel owners wishing to sell during this economic downturn. Given this recent data that properties are being purchased at a much quicker rate, it is a great time to sell in the hospitality market.
Challenges That Come with Recession
Businesses that did a great job navigating a previous downturn may soon realize that those same tactics will not be as effective when faced with another downturn or recession. Hotel owners need to understand the type of investments they are willing to make during these times of uncertainty, and one of those decisions may be to decide to sell their property. Owners need to reference historical circumstances for guidance, but also look ahead to what the future may hold. There are already concerns of stability within business and leisure demands, and it is difficult to see what those demands will look like five years from now. However, owners can be sure that hotel properties are selling more quickly at this moment. There is a time and place for taking risks, but when the data is telling people that it is a great time to sell, it’s difficult to ignore.
Conclusion
Corporations throughout the nation are uncertain for what the future holds. Capital spending is likely to increase, but it would be wise for hotels to stop hiring for a moment and wait to see what the market has to say after Q4 ends. Recession is a frightening word for business owners who want to make the right decisions and end up with the most profit. Hotel owners have experienced a season of turmoil the past few years, especially with the detrimental effects of the Covid-19 pandemic that are still looming over them today. It is difficult to say how the hotel industry will respond to yet another economic downturn. Selling now is an excellent option for hoteliers who are experiencing high demand from revenge travel, and with buyer interest and economic softening ahead, capitalizing on equity increases while market RevPAR rates are rising is the best decision. Furthermore, the increase in overall supply of hotel rooms will dilute room demand and bound back travel has yet to be proven steady which will most likely not hold into the coming years.
