Marcus & Millichap

2020 Hospitality Investment Forecast

2020 Outlook

Special Research Report

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National Economy
  • The national economy entered a record 11th year of expansion in 2020, supported by steady job creation and higher-than-normal levels of consumer and business confidence. A historically low level of unemployment, while hindering hiring for many firms, is also contributing to greater wage growth as some companies increase pay to attract top talent. Higher earnings are in turn bolstering discretionary spending.
  • Despite favorable consumer trends, there are some potential clouds on the horizon. While trade relations between the United States and China have stabilized in the short term, numerous tariffs remain in place, and they may yet drag on growth. Uncertainty surrounding other geopolitical events could also disrupt the expansion, although the current baseline forecast remains positive.
  • Travel within the United States is rising and on track to achieve a new cycle high this year. High levels of job security are encouraging more individuals to plan future vacations, while also traveling to numerous meetings and conferences. International visitor volume may decline however as the appreciation of the U.S. dollar and the spread of the coronavirus abroad are inhibiting travel for many.
National Hotel Overview
  • Following a decade of robust demand growth that culminated in a 30-year record high level of occupancy last year, the hospitality sector will transition to a period of more gradually improving performance in 2020. As the occupancy rate walks back from 2019’s peak level and revenue gains moderate, hoteliers will look for ways to boost revenues while managing costs.
  • As hotel room demand advances at a more moderate rate, hotel development is mildly increasing, with the number of available room nights expected to grow by 2.2 percent in 2020. More than half of the roughly 200,000 rooms under construction are at the select service level, while the inventory of luxury hotels is set to expand by more than 11 percent, the largest margin of any class.
  • Major hotel brands unsurprisingly dominate construction activity, with Marriott and Hilton each representing more than 25 percent of the keys underway. Some of these projects include new sub-brands created under these organizations to more strongly engage specific customer groups.
Capital Markets
  • The Federal Reserve will balance a multitude of economic and geopolitical forces this year as it aims to sustain domestic growth. Although few changes are expected this year, Chairman Jerome Powell has reemphasized that the committee will continue to monitor conditions as it develops and sets policy accordingly.
  • Capital remains readily available, although some financiers, primarily commercial banks, are reporting less room on their balance sheets for new hospitality loans. Instead, investors are obtaining financing from CMBS sources as well as from debt funds and other private lenders.
  • Lenders are practicing more restraint in regard to construction, preferring developers with established pedigrees working on projects in high-travel areas of major markets.
Hotel Investment Outlook
  • Investors remain active in the hospitality sector, but global and political uncertainties have clouded buyer and seller sentiments. Health-based travel disruptions and new supply concerns could weigh on sales velocity in the year ahead, although a recent detente in trade relations with China may spur new investment.
  • To help stimulate room demand, hotel owners are partnering with well-known consumer brands and leveraging social media to capitalize on travelers' desire for unique experiences. These initiatives help drive visitation by making the hotel itself the destination.
  • While overall transaction velocity slowed in 2019, the distribution of sales among chain scales shifted toward economy assets. A larger portion of trades also involved midscale and upper midscale properties, as buyers sought higher initial returns and hotels that catered to travelers' demand for affordable accommodations.

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