1. Bid-ask spread is narrowing
Anecdotally we’ve been hearing for a while that the bid ask spread is narrowing and this is now being borne out by an increasing number of transactions across key markets since the start of the year. This might sound like it’s a lot easier to source deals and get them done but reports from our Investor Council members suggest this isn’t the case: “It's tough. We really have to look for stuff, you really have to work hard to find good value out there. It's easy to it's easy to get carried away, but you've got to be quite disciplined at this point,” said one investor.
2. Hotels just one part of beds market
The hotel investment market has been through quite a cycle in the last two decades or so: from the wild west, to investors getting burnt in the Global Financial Crisis, to now and what is quite a mature, institutionalised ecosystem. But it is an ecosystem that sits within a broader “living” or “beds” operational landscape with more potential assets to invest in. For some funds allocating to these other, related sectors might be easier and less complicated (no HMAs for example). But with maturity comes greater options when it comes to debt, a real plus point for hotel investors.
3. Instability a fact of doing business
Arguably, we’ve been living in an unstable world since 2026 with Brexit, Trump’s election, wars, Covid-19 etc and this doesn’t show any signs of changing anytime soon. One investor talked about arranging a small financing package earlier this year but then France’s President Macron called an election which sent the swap markets into a spin. A lot of the bigger deals that maybe involve multiple properties take upwards of 18 months to complete and in those cases there are often small windows where everything aligns, when you can complete.
4. Less fat to strip
We’ve already mentioned the fact that the hotel investment market has matured over the last decade and this has led to challenges for new owners. You see, initially what created the market was the big hotel brands selling their owned real estate and moving into operating or just franchising hotels. These properties were an asset managers dream with plenty of easy saving to be made. Now, however, the market is much more sophisticated making it harder to flip a hotel for a quick profit with minimal effort. Asset management these days is a much more tactical and technical game.
5. Luxury vs ultra luxury
We’re all aware of the growing number of middle class consumers in the likes of India and China but there’s another segment that the travel industry is tapping into: the ultra wealthy. High-net-worth-individuals are happy to splash the cash on experiences but it has to be at the very top end, that is why we are seeing the rise of ultra luxury hotel brands. And growth at the very top end will likely mean problems for “normal” luxury. “Ultra luxury will be able to continue to push [that] top line growth and have that flow down to the NOI,” said one investor. The challenge for those investors looking to grow in the ultra luxury space is finding suitable properties. After all how many hotels are there that come with a vineyard?
6. Different location, different brand standards?
The issue of brand standards is always hotly debated among hotel investors and globalisation has thrown up a new series of challenges. A lot of the big hotel brands originated in the US, meaning that a lot of the hotel stock is fairly aged. As they have expanded they have moved into newer markets such as the Middle East and Asia Pacific. The hotels in these markets are obviously a lot newer. And so it’s possible for a brand to have a totally different reception among both consumers and investors depending on the location. The challenge for the hotel brands is keeping control of the situation, given the rate of expansion.
Patrick Whyte | In partnership with Investor Council Technology Sponsor, Oracle Hospitality
