The end of 2022 and beginning of 2023 marks more than just a changing of the calendar for the global hotel industry.
As the industry continues to move further away from the worst of the COVID-19 pandemic and to a more normalized operating environment, hoteliers and industry observers are keeping a keen eye on how things continue to evolve, especially as threats related to a broad economic recession loom.
To help provide some clarity, Hotel News Now took a look some of the biggest trends for the industry throughout 2022 and the biggest changes that will inform how the industry performs in 2023. Here are some of the highlights of that coverage.
Not surprisingly, recession concerns and increasing interest rates had a dampening effect on hotel transactions in 2022, but some expect the deals environment to improve in 2023.
Despite high rates, Gilda Perez-Alvarado, global CEO at JLL Hotels & Hospitality, said capital raised for hotels is still at an all-time high, and that money might move around more as people have more certainty on what comes next.
“I would say the dry powder is there,” she said, adding that there should be an increasing number of hotels available for purchase next year. “From a volume perspective, 2023 should actually be a very, very robust year.”
In the United Kingdom, transactions volume actually increased year-over-year, while still lagging 2019 figures.
Financing experts said it's not that buyers won't be able to borrow for hotels in 2023, but rather it will be more expensive than in recent history.
PMZ Realty Capital President Peter Berk said the cost of debt is closer to historic averages, which means deals can still pencil, even if it's not as easy as it might have been over the past decade. He added it's still difficult to convince investors that the favorable pricing over the past few years isn't what they should always expect.
"They hear [debt is more expensive] from us, and they hear it from other people, but still in the back of their mind, they look at the last deal they did and think 'Why can't I get that?'" he said. "So there's always a time passage that has to come down before they realize that 6% really isn't a bad number. Historically, it's an average-to-good number."
Increasing interest rates rank among the biggest concerns hoteliers have heading into the New Year, along with rising costs associated with labor and utilities.
Experts said these higher costs continue to hold down new hotel development.
"On one hand, the lack of development for the sake of development and a little bit of tempering on supply over the next couple of years will be good for existing hotels, but the interest rates are going to hurt everybody. There's going to be a lot of loan maturities coming up over the next 12 to 24 months ... definitely some headwinds there," said Richard Jones, executive vice president and chief operating officer at Atlanta-based Hospitality Ventures Management Group.
Data from CoStar's hospitality analytics firm STR showed development remains muted compared to pre-pandemic levels, but ticked up over the course of 2022.
In January, there were 1,631 hotel projects with 179,400 rooms in the final planning stage, growing to 1,903 projects with 213,642 rooms by November. In January, 2,536 hotel projects with 294,611 rooms were in the initial planning stage, and that dropped to 2,078 projects with 236,251 rooms by November.
Overall, industry experts believe those willing to make the boldest choices, particularly with room pricing, are poised for success in operations this year.
Cory Chambers, senior vice president and chief revenue officer at Hospitality Ventures Management Group, said revenue strategists need to be creative, with a willingness to try new things and take risks.
"[They need to be able] to own a decision that didn't work and eliminate that, but now we know because we tried it and no one can say we didn't," he said. "We would far rather see a risk be taken and a negative outcome occur than no risk be taken and nothing changes."
One concrete example is that pushing rates to unprecedented levels yielded results for hoteliers in Sharm El-Sheikh when that Egyptian city hosted the United Nations COP27 climate summit.
Sharm El-Sheikh's hotel average daily rate on Nov. 7 was 1,127% higher in local Egyptian pounds than on the same date in 2019. Even indexed in U.S. dollars, ADR for that date increased by 732%.
Increasing international hotel demand is expected to be one of the biggest shifts heading into 2023, with experts saying travel patterns could more closely resemble pre-pandemic norms.
That also means booking windows are expected to be longer than they have been in recent years.
“Thank goodness for the whole industry that we're back to a healthy window because sitting in your office on a Monday hoping that people would come to the hotel on Friday, that's how we spent 2021, and it was pretty nerve-wracking for everybody,” said John Beck, general manager of Crowne Plaza HY36 in New York.