The U.S. hotel investment landscape is brimming with optimism as 2024 unfolds, with half of surveyed investors planning to expand their hotel portfolios. Despite challenges such as rising borrowing and labor costs, investors remain drawn to the sector’s potential for high returns and opportunities presented by shifting market dynamics. Insights from the 2024 CBRE U.S. Hotel Investor Intentions Survey highlight key trends, priorities, and obstacles shaping this year’s hotel investment market.
A Positive Outlook Amid Challenges
The 2024 CBRE survey underscores a generally positive sentiment among U.S. hotel investors. Half of the respondents indicated plans to increase hotel investments, fueled by expectations of higher returns and declining acquisition costs. Approximately 35% anticipate maintaining 2023 levels of investment, while less than 16% plan to reduce their hotel allocations.
Despite these optimistic intentions, investors face a challenging environment. Rising borrowing costs, escalating labor expenses, and higher insurance premiums pose significant risks, threatening to compress profit margins. Additionally, competition from alternative accommodation sources, including cruise lines, short-term rentals, and glamping, remains a secondary concern for most investors, with only 30% citing it as a key issue.
Investment Priorities: CBDs and Resorts Shine Bright
In terms of location preferences, resorts and central business districts (CBDs) stand out as top choices. More than 40% of investors identified resorts as the most attractive option, supported by steady leisure travel demand and modest average daily rate (ADR) growth. CBDs were the second most favored, buoyed by a resurgence in group, business, and international travel. Revenue per available room (RevPAR) is expected to grow by 3.1% for urban locations and 1.6% for resort destinations in 2024.
Upper-Upscale Properties Take Center Stage
Upper-upscale properties have emerged as the most attractive chain-scale category, favored by 42% of respondents. Close behind, 40% of investors are targeting upscale and upper-midscale properties, while 31% are drawn to luxury assets. On the other hand, midscale and economy hotels have fallen out of favor, likely due to declining RevPAR in these segments.
Limited-service hotels lead in service preferences, with 40% of respondents citing them as their top acquisition targets. Full-service hotels followed at 32%. Interestingly, extended-stay hotels, which gained popularity during the pandemic, were the top choice for only 21% of investors, reflecting a shift back toward traditional hotel formats.
The Value-Add and Opportunistic Approach
More than 70% of surveyed investors are focused on value-added and opportunistic investments. Value-added strategies—which include adding rooms, enhancing amenities, or redesigning interiors—are particularly appealing as they offer pathways to increase both immediate returns and long-term value.
For those increasing their hotel investments, 40% cited declining prices and stronger return prospects as primary motivations. Additionally, over one-third noted increased availability of distressed assets and decreasing debt costs as key drivers.
Conversely, 64% of investors planning to scale back cited difficulties in securing and servicing debt as well as the need to strengthen their balance sheets as primary reasons for reduced activity.
Market Dynamics and Geographic Focus
Major urban markets and leisure-driven cities are poised for strong performance in 2024. New York City, Washington, D.C., Miami, Charleston, and Austin are expected to lead the way, driven by a combination of limited supply, robust demand, and regulatory restrictions on short-term rentals. Notably, New York City is regarded as the most attractive market for investment, with its high barriers to entry and strong fundamentals.
Despite its slower recovery since the pandemic, San Francisco has garnered renewed interest, particularly due to the potential influx of distressed assets that could offer favorable pricing opportunities.
Investor Sentiment on Branded vs. Independent Hotels
The survey revealed a split among investors regarding branded and independent hotels. While more than half of respondents intend to divest from globally branded properties, over one-third plan to acquire them. Similarly, independent hotels saw a higher weighting toward divestitures, with investors favoring acquisitions of soft-branded properties that offer flexibility and strong brand association.
Soft-branded hotels, which are affiliated with a global brand but retain independent branding, remain attractive for acquisition, with more than two-thirds of investors expressing interest in this category.
Key Challenges: Borrowing and Labor Costs
Unsurprisingly, increased borrowing and labor costs are the most cited challenges for hotel investors in 2024. Rising interest rates have made financing more expensive, while labor shortages and wage growth are putting pressure on operating margins. Higher insurance premiums add another layer of complexity, further straining profitability. Nonetheless, these challenges have not dampened enthusiasm for strategic investments and repositioning opportunities within the sector.
Who Participated in the Survey?
The 2024 CBRE U.S. Hotel Investor Intentions Survey gathered insights from over 130 respondents with a primary focus on U.S. hotel investments. A majority (61%) identified as developers, owners, or operators, and more than half had at least 75% of their assets under management in hotels. Notably, 84% of participants reported assets under management ranging between $5 billion and $10 billion.
The 2024 U.S. hotel investment market reflects a complex but opportunity-rich environment. As investors navigate rising costs and evolving market dynamics, focusing on prime locations, value-added opportunities, and strategic acquisitions will be critical to success. With strong fundamentals in urban and leisure markets, the sector remains a promising avenue for long-term growth and profitability.
Looking to capture the growing demand in the real estate and hospitality sector? VidTech’s cutting-edge 4K satellite and drone footage solutions can showcase properties with unmatched clarity, giving investors a competitive edge.
