RLA Global Competitive and PESTLE Analysis
- As current market trends create new hotel opportunities, traditionally residential real estate developers are finding hotel investment particularly appealing.
- There was a remarkable amount of global hotel investment activity in the first half of 2021, driven by entry-level deals such as Starwood Capital Group and The Blackstone Group acquiring America's Extended Stay of America for $6 billion.
- Resort markets accounted for almost 21% of global hotel investments in 2020, indicating the present investment appeal of remote and less dense markets. As travelers seek the safest options available, drive-to and resort markets have performed better than urban markets, making them more attractive to investors.
A PESTLE (Political, Economic, Social, Technological, Legal, and Environmental) analysis of the global hotel real estate market has been provided below.
- In the first half of 2021, the US accounted for roughly 70% of total global investment volume in the hotel real estate sector. Investor demand grew faster than expected once COVID-19 restrictions were lifted.
- On the other hand, during the same period, investment activity in the APAC and EMEA regions remained more subdued due to new lockdown and travel restrictions.
- In the first half of 2021, global hotel investment activity reached $30 billion, a significant increase in sales activity of 66% year over year. This remarkable increase in portfolio activity was mainly driven by entry-level deals such as The Blackstone Group acquiring Borne Leisure in the UK for about $3.9 billion, and Starwood Capital Group and The Blackstone Group acquiring America's Extended Stay of America for $6 billion.
- Almost 50% of all transactions in 2020 closed in the first three months of the year, leading to a zero-cash flow environment. Although this environment was difficult to navigate, lenders tried to grant forbearance agreements.
- As current market trends create new hotel opportunities, traditionally residential real estate developers are finding hotel investment particularly appealing. The value of condos, villas, residences and commercial real estate fluctuates due to supply and demand, but the demand for vacation real estate far exceeds supply, especially in tropical vacation destinations. Moreover, many developers consider hotels as a good way to enhance and complement the residential and commercial components of neighborhood projects.
- Investors adjusted their investment strategies in 2020 in response to shifts in leisure traveler preferences and hotel demand, acquiring assets in markets that performed better during the recession. Resort markets accounted for almost 21% of global hotel investments, indicating the present investment appeal of remote and less dense markets. As travelers seek the safest options available, drive-to and resort markets have performed better than urban markets, making these assets attractive.
- During the first half of 2021, the US accounted for the largest proportion of total global investment volume in the hotel real estate sector. This was due to the vaccination of a huge proportion of the population as well as positive domestic travel sentiment, thus driving investor interest. However, in the APAC and EMEA, vaccination rates were lower, leading to more subdued investment activity.
- Despite the fact that Southeast Asia is dealing with lower vaccination rates than Europe and the US and new COVID-19 cases, investors are optimistic about recovery in this region and eventually opening for tourism, particularly to China.
- As travel slowly resumed after the pandemic, travelers showed a desire for larger, more private hotels where they could stay and work remotely for extended periods of time, and extended-stay vacation rental options and hotels are outperforming the overall accommodations market. Travel trends during COVID-19 underlined the appeal of this hotel product even more, with serviced apartments becoming a more appealing property type for investors. The shift in customer demands and expectations will boost this segment's growth in the next few years.
- The effective introduction of the COVID-19 vaccine, combined with increased consumer confidence, has rekindled demand for international vacations, thus increasing investor confidence. The willingness to purchase more hotel real estate strongly indicates that investors are looking beyond COVID-19's immediate impact on the industry to a stage when travel restrictions are removed and the leisure, tourism, and hospitality industries can completely reopen, identifying that they will demonstrate a "strong hedge against inflation".
- In 2020, consumers prioritized touchless/contactless service. As a result, hotel operators have increased their technological advancements. Room service and hotel amenities such as contactless check-ins, smartphone reservations, and food delivery; as well as the introduction of hybrid conferences for event planners, and meetings have become increasingly important.
- The $2.2 trillion "economic stimulus package" passed by Congress in March 2020 was very successful in stabilizing the US economy and aiding the hotel industry. However, the rate of recovery slowed down in the third quarter of 2020 due to a lack of bipartisan agreement on additional stimulus measures.
- The post-election focus on extra stimulus will build the groundwork for a faster recovery throughout property types, which includes hotels.
- On a global scale, there is a push to prioritize real estate investments based on social, environmental and governance principles. The commercial real estate industry has a significant role to play in spreading ESG principles around the world, and the hotel industry, in particular, has the potential to significantly drive change. Consumers, are becoming more informed of the principles that dictate how businesses operate and are using their purchasing power to influence change.
- Additionally, the new focus on expanding inclusion and diversity programs throughout all industries, mainly at the upper management level, has been fueled by the recent increased focus on race issues.
For this research on the global hotel real estate market PESTLE analysis, we leveraged the most reputable sources of information that were available in the public domain, including market articles, reports and surveys from sources such as Jones Lang LaSalle (JLL), Forbes, BU.edu, Hotel Management, Hospitality Net and Hotel Online, among others.