While the global hotel industry is still facing multiple headwinds, 2022 is proving to be a pivotal year for its recovery. Postponed development projects are being revived, hotel real-estate investors are moving ahead with plans to buy properties and performance metrics in some markets are re-bounding above pre-pandemic levels. Here, Hotelier dives deeper into some of the latest global insights.
The total global construction pipeline currently stands at 14,117 projects/2,293,131 rooms, up five per cent by projects and two per cent by rooms year-over-year (YOY), according to Lodging Econometrics’ Q2 2022 Global Construction Pipeline Trend Report.
At Q2 closed, there were 6,074 projects/1,110,174 rooms under construction. In the next 12 months, 3,664 projects/525,096 rooms are scheduled to start construction. Projects in early planning reached record-high counts of 4,379 projects/657,861 rooms, up 22 per cent by projects and 13 per cent by rooms YOY. Conversions also reached new highs in Q2, coming in at 1,672 projects/206,355 rooms.
The U.S. currently leads the global construction pipeline at the end of Q2, with 5,220 projects/621,268 rooms, followed by China with 3,693 projects/701,974 rooms. Together, the countries account for 63 per cent of all global projects. Distantly following are India with 339 projects/42,548 rooms; the U.K. with 309 projects/46,296 rooms; and Indonesia with 284 projects/45,359 rooms.
The leading franchise company is Hilton Worldwide, with 2,596 projects/379,818 rooms, followed by Marriott International with 2,533 projects/421,613 rooms; InterContinental Hotels Group (IHG) with 1,687 projects/247,310 rooms; and Accor with 894 projects/155,577 rooms. Together, these companies account for 55 per cent of all projects in the pipeline.
The first half of 2022 saw a total of 803 new hotels/121,029 rooms open around the world, with an additional 1,653 hotels/244,956 rooms scheduled to open by year-end. In 2023, 2,658 new hotel openings/416,640 rooms are expected to open. For 2024, LE is forecasting 2,786 new hotels, accounting for 435,870 rooms to open globally.
“Presently, we’re seeing a lot of upscale and upper-midscale development and less luxury and upper-upscale developments, which has been an ongoing trend for quite some time,” says JP Ford, principal, director of Global Business Development, Lodging Econometrics. “Upscale and upper-midscale brands are attractive to the development community and lenders because they’re generally tied to solid 800 reservation systems, have strong loyalty programs and many of them have compact food-and-beverage components, which certainly make them easier to operate and manage. Lenders like them, too. Luxury and upper-upscale developments, on the other hand, require a lot of capital, design, long lead times, and as a result, are riskier.”
“The U.S. pipeline has been, and remains today, dominated by upscale and upper-midscale chain scale projects. In total, 57 per cent of rooms in the active pipeline are within those two chain scales. This is the same for Asia Pacific,” says Alison Hoyt, senior director, Consulting, STR. “The Middle East and Africa skews a little higher on the chain-scale hierarchy, with 50 per cent of rooms in the active pipeline within the upper-upscale and upscale chain scales. For Europe, there are a higher percentage of projects that are unaffiliated (will remain independent or are not currently affiliated with a brand).”
Canada’s construction pipeline stands at 261 projects/35,662 rooms, up three per cent by projects YOY and seven per cent by rooms YOY, according to Q2 2022 Canada Construction Pipeline Trend Report from LE.
The top provinces are Ontario with 148 projects/20,539 rooms, accounting for 57 per cent of the projects in Canada’s total pipeline; British Columbia with 42 projects/6,868 rooms; and Alberta with 23 projects/2,125 rooms. Together, these provinces account for 82 per cent of the total pipeline.
In the first half of 2022, LE reported 10 new hotel openings in Canada. In the second half, 24 new hotel openings are anticipated, for a total of 34 projects/ 4,103 rooms to open in 2022 for a supply growth rate of 1.2 per cent. In 2023, LE is forecasting 38 projects/4,182 rooms to open, for a supply growth rate of 1.2 per cent. And, 2024 should see 43 projects/4,576 rooms open for a growth rate of 1.3 per cent.
Earlier on, June 2022 data from STR showed hotel pipeline activity was down across the global regions. “Labour is still an issue. Costs are still increasing. Supply chain is still a problem in terms of getting a product that’s been ordered to a site and installed. Development budgets are constantly in revision. There are still external factors impacting hotel development,” says Ford.
Generally speaking, 2022 has been a strong transaction year. The increased interest for travel has resulted in strong key performance indicators (KPIs) for hotel assets, generating elevated valuations and transaction activity.
Overall, a total of 573 deals, including mergers and acquisitions, private equity and venture financing, were completed in the global travel-and-tourism sector during the first half of 2022 for a YOY increase of 3.1 per cent over the 556 deals in the first half of 2021, as reported by GlobalData.
In Canada, lodging investment picked up in Q2 with approximately 25 transactions totalling $375 million, more than double that of Q1 volume with a boost from a handful of full-service and portfolio trades, according to Colliers Hotels’ INNvestment Canada Q2 2022 report. The average price per key through Q2 reached $146,000, up roughly five per cent from the same period in 2019.
There were no acquisitions for conversion to alternate use in Q2, with sales for ongoing hotel use taking a dominant role. Top transactions in Q2 2022 include the 48-key Severn Lodge Resort in Ontario for $20.5 million; the 103-key Hampton Inn & Suites by Hilton Fredericton in New Brunswick for $13.9 million; and the 206-key Stanford Inn & Suites Grand Prairie in Alberta for $11.6 million.
Additionally, U.S.-based LW Hospitality Advisors Q2 2022 Major U.S. Hotel Sales Survey includes 133 asset sale transactions over $10 million, which totalled roughly $5.3 billion and included approximately 21,200 hotel rooms, with an average sale price per key of $248,000.
In the Asia Pacific, Jones Lang LaSalle (JLL) estimates hotel-investment volumes totalled $6.8 billion in the first six months of 2022, representing 33-per-cent growth YOY and an 11.9-per-cent increase on 2019. In total there were 75 transactions across various markets. Japan ($1.8 billion), Korea ($1.7 billion) and Greater China including Hong Kong ($1.6 billion) received the most capital.
“The primary driver of [hotel valuations for the remainder of 2022 and into 2023] will be the cost and availability of debt,” says Curtis Gallagher, principal, Canadian Hospitality Lead, Avison Young “If the debt piece isn’t there, it reduces the liquidity of a hotel, which reduces the value. The cost of the debt will have an impact on value. There’s also discussion about recessionary headwinds, which could also have an impact on value because the numbers aren’t returning as anticipated. [However,] once Q3 is completed, positive results will give lenders more confidence to get back into the game.”
Global hotel prices are expected to rise 18.5 per cent in 2022, followed by an 8.2-per-cent lift in 2023. Hotel prices have already surpassed 2019 levels in some areas such as Europe, the Middle East & Africa and North America, and are expected to do so globally by 2023, according to the 2023 Global Business Travel Forecast by CWT and Global Business Travel Association. In North America, hotel rates have risen 22 per cent. Additionally, a 31.8-per-cent increase is forecast across Europe, the Middle East and Africa.
In Canada, operating performance continued to improve in Q2. In July, hotel occupancy topped its pre-pandemic comparable for the first time, as reported by STR. Specifically, occupancy reach 75.5 per cent (up 0.3 per cent), Average Daily Rate (ADR) sat at $214.77 (up 16.1 per cent), and Revenue Per Available Room (RevPAR) came in at $162.11 (up 16.4 per cent).
Prince Edward Island recorded the highest July occupancy level (91.9 per cent), which was 9.3 per cent above the pre-pandemic comparable, while the lowest occupancy was reported in Saskatchewan (64,2 per cent), up 2.8 per cent against 2019.
Overall, transient leisure demand has been serving as the primary driver of performance. Large conventions, conferences and events are expected to see stronger growth through the remainder 2022 and into 2023. Additionally, there have been subtle signs of corporate recovery, but analysts warn that a full return to pre-COVID levels of corporate travel may never occur as many employees continue to work from home and interact with colleagues over Zoom.
“This summer, the leisure market has come back with significant strength despite some international challenges through various airport delays,” says Gallagher. “The question remains, what is it going to look like in the months to close out the year when [the industry is going] to be more reliant on corporate demand?”
“Leisure demand will continue through the fall, and I expect that to be the big contributor to occupancy and rate. Corporate travel is slowly returning but there’s going to be a fair amount of corporate travel that will be difficult to get back any time soon,” says Ford. “Certainly, we’re headed in the right direction.”
By Nicole Di Tomasso