SAN DIEGO, California — The latest survey from the Hospitality Asset Managers Association highlights how members expect a continued soft demand environment heading into 2025, but there is continued optimism around the deals market opening up.
The HAMA Fall 2024 Industry Outlook Survey shows that the overall demand environment continues to rank as the group's top concern, and a plurality of respondents expect at most a small percentage of their properties to beat their 2024 revenue budget.
In all, 44.6% of respondents expect zero to 25% of their hotels to exceed budgeted revenue per available room for 2024, the smallest amount available in the survey. Comparatively, 38.5% expect 26% to 50% of their portfolios to hit that milestone.
Still, a majority believe they will finish the year with better RevPAR results than 2019, with 58.5% still projecting a RevPAR increase compared to the pre-pandemic period and 36.9% expecting a flat to 25% drop compared to that year.
Emily Miller, vice president of asset management at Atrium Holding Company, said one of the things that makes projecting the hotel demand environment difficult going forward is it varies so wildly from market to market and property to property.
"Even within markets like San Francisco, this corner is doing better than that corner," she said to Hotel News Now at a joint interview of HAMA board members during the organization's 2024 fall meeting.
Most members expect the muted growth environment to continue, with 53.9% projecting less than 3% RevPAR growth in 2025.
The hotel demand environment garnered the most votes for top concern among HAMA members, with 66.2% ranking it as one of the three things they're "most concerned about right now," followed by wage increases at 52.3%, average daily rate growth at 47.7% and union activity at 41.5%.
This marks a shift from the groups spring survey when members ranked increases insurance costs among their top concerns, but that was an issue to 27.7% of respondents this time compared to 41.2% in April.
HAMA board members said this might reflect that idea that many hoteliers feel the highly inflated insurance premium increases seen lately might be moderating, and there are more businesses getting creative about how they approach insurance due to the high costs.
"We don't want a 10% to 15% increase, but we just had 30%, so we can live with it," Miller said.
Survey results also seem to reflect a higher degree of certainty around the trajectory of interest rates, with the number of members ranking the Federal Reserve's interest rate decisions as a concern dropping from 38.2% in the previous survey to 29.2%.
There is continued optimism among HAMA membership, though, about the possibility of doing hotel deals.
In all, 70.1% of members are "actively pursuing acquisitions." That remains fairly consistent with the 77.9% that stated they were active in the market in the spring, but that high figure didn't end up reflecting an uptick in the deals market.
And indeed, HAMA board members remained skeptical that deals will suddenly get easier in the coming months.
"Everyone's eager, but I don't think the transactions volume is going to change much," said Chad Sorensen, managing director and CEO of CHMWarnick. "The capital markets are still just too challenging to see any meaningful recovery."
A majority of HAMA members are also expecting a drop in cap rates over the next 12 months, with 35.4% expecting a 50-basis-point drop and 33.9% expecting 25-basis-point drop.
There seemed to be little concern about hotel refinancing among members, with 70.1% of respondents saying less than 25% of their portfolios will require refinancing debt over the next nine to 12 months.
But Derrick Yee, principal at Kahana Capital Partners, said he's somewhat skeptical of that figure given market dynamics, and refinancing will remain a macro-challenge for hoteliers.
"Just mathematically, there's a lot of deals done that must be coming up close to maturing, and the rates still aren't gonna work," he said.
Other survey results include:
- HAMA members are experienced little distress, with just 1.5% saying they've been forced to hand back keys to a hotel property in the last six months and 15.4% saying that will be a concern going forward for any of their hotels.
- Concerns about a broad economic recession remain low, with just 18.5% expecting one in 2025.
- A majority of members are looking to make changes within their portfolios, with 58.5% looking to make either a brand or management change or both at their hotels.