02/14/2022 | by Sarah Borchersen-Keto

Transaction activity in the hotel sector this year is expected to be “incredibly strong,” with robust pricing continuing in the luxury resort segment and the start of a recovery in business transient and group demand, according to Kevin Davis, CEO of JLL Hotels & Hospitality, Americas.

Speaking on the REIT Report, Davis noted that JLL has more than $12 billion in its U.S. hotel sales and financing pipeline for 2022, the highest level since 2015, which was already a record year from a transaction volume perspective. If JLL is a proxy for the market, “my expectation is that you'll see a lot of transactions this year.”

Davis said anticipated gains for 2022 follow a particularly strong year for the industry in 2021. This was fueled by the large amount of capital that had aggregated on the sidelines to take advantage of potential distress in the sector—which never materialized—as well as pent-up consumer demand for travel.

“There was a meaningful amount of capital on the sidelines prepared to deploy into the space, particularly in the private equity space, which accounted for about 50% of all the transaction volume. Also, we saw the REITs become very active in 2021,” while foreign capital selectively re-entered the space, Davis said. “Investors really bought into the upside story… which led them to buy resorts at a big price per key and luxury at a big price per key,” he added.

Other takeaways from Davis’ interview included:

  • In addition to drive-to resorts, extended-stay lodging assets will continue to perform particularly well.
  • Business transient and group demand is expected to pick up as the pandemic moves toward the endemic stage.
  • Recovery of international demand will probably occur over a multi-year period, starting in 2022 and building over time.
  • While the hotel sector now has an improved operating model from an efficiency perspective, a counterbalance has been the shortage of labor and upward pressure on wage rates and the cost of utilities.
  • The hotel industry needs to respond to the opportunity presented by the merging of work, play, and living. “Hotels are in a great space because we control the beds in phenomenal locations. So, if we can add these additional amenities that people want when they travel, I think the industry is in a tremendous place to be successful as demands change from the consumer.”