NEW YORK — All eyes are on the hotel real estate transaction market, watching to see when the hospitality industry can expect to see deals pick up.
In a video interview at the recent NYU International Hospitality Investment Forum, Kevin Davis, Americas CEO, JLL Hotels & Hospitality, said the end of the year has potential to see some deals activity pick up as the dust settles on the many macroeconomic factors causing dealmakers to hit pause on transactions.
"I think the rest of the year will be a bit of wait and see, followed by a bit of resolution and decision to move forward," Davis said.
He added that he thinks there's a consensus that interest rates will be higher for longer, and investors just need to wrap their heads around that.
"I think what's going on is there's a bit of a resetting and reframing as to how investors are thinking about the market," he said. "As we get into probably late third quarter, fourth quarter, we can start to see some resolution, and people start to just transact and again, supported by the sales market, supported by a strong debt market."
When it comes to inventory and new builds, Davis said that there was already a muted expectation for growing inventory this year.
"Even before we get into a tariff discussion, we were projecting that there was going to be a sizable decrease in the amount of hotel supply, in large part because the cost of construction has increased pretty materially post COVID," Davis said.
It's been overwhelmingly cheaper to buy existing properties than to build brand new, just considering the cost of construction, he said.
"You layer in tariffs, which, at this point it's uncertain what the magnitude of the impact will be, but if you're assuming 10% to 15% — that's in addition — it makes it that much more challenging," he said.
Despite some of the industry's challenges, demand seems to be holding for the most part in some markets and chain scales, Davis observed.
"We've seen an urban recovery over the past 24 months, driven by back to office, and the return of leisure travelers to the city," he said. "Now, the leisure trend has abated a bit, as some of the consumers have felt a little financial strain, but we've also seen the return of business transient as well as group, and those have helped drive traffic to urban assets."
Leisure is leading the way when it comes to revenue per available room, and some travelers are opting for more affordable options, so economy RevPAR is seeing a bump too.
"At the end of the day, we've seen this movement where the middle is sort of hollowed out a bit in terms of performance, and you've seen some improvement in the economy segment, and also improvement in upper upscale and and luxury," he said.
For more from JLL's Kevin Davis, watch the video above.