Property Perspectives

3 Reasons We’re Considering Hospitality Real Estate Right Now

Learn about the supply and demand dynamics we see shaping hospitality real estate in 2024 with exclusive insights from a number of industry leaders.
by Fabian Sy

Despite the lingering challenges in the hospitality industry, we’re seeing many commercial real estate leaders remain optimistic for 2024. We recently had the opportunity to connect with leaders at Capstone Equities, Dovehill Capital Management, New Castle Hotels & Resorts, and Rebel Hotel Company. Our discussions with these leaders and reviews of deals in consideration for the CrowdStreet Marketplace reveal supply and demand dynamics that we find interesting. 

In 2023, the U.S. hospitality industry reached unprecedented heights, boasting record-breaking average daily rates (ADR) and revenue per available room (RevPAR).1 These are among the common performance metrics we generally track for the hospitality industry. We’ve observed that growth has been market and customer-specific. Notably, urban markets led the RevPAR growth in 2023, buoyed by an ongoing recovery in the group and business travel segments.2 Suburban and airport submarkets also benefited from the recovery of these key segments.3

While the hospitality industry has exhibited resilience despite prevalent concerns over interest rate hikes, geopolitical uncertainties, and fears of an economic slowdown, it has not yet recovered to pre-pandemic levels on an inflation-adjusted basis.Challenges remain as increases in construction and operating costs continue to erode profit margins for owners.5 However, several factors may be further aiding hospitality’s momentum.

1. Steady Demand Projected 

“Fundamentally, we have more confidence in the space than we’ve ever had before. Every generation is seeing increased interest in travel, from Boomers to Gen Z. We have a lot of confidence in the long-term outlook in the sector,” says Julian Buffam, Partner at New Castle Hotels & Resorts

This optimism is echoed by Jake Wurzak, Founder and CEO of Dovehill Capital Management. While the industry is seeing positive momentum and challenges, the “tailwinds are bigger than the headwinds. The biggest headwinds are now market-specific, which can be avoided,” states Wurzak.

The latest outlook by Hospitality Valuation Services (HVS) echoes these sponsor sentiments, forecasting continued growth at a modest pace and gains in occupancy and ADR.6 Group bookings (among luxury and upper-scale hotels) and business travel continue recovering from the pandemic. Group bookings have started the year with ten consecutive weeks of year-over-year gains, increasing 7.6% year-over-year and just 1.0% below 2019 levels according to STR.

According to the Global Business Travel Association, the recovery in business travel has surpassed initial expectations, which they project will exceed 2019 levels later this year.8 While the number of business trips is down 30%, the length of stay is longer primarily due to people extending trips for leisure purposes and a conscious effort to reduce less critical trips, in part to reduce carbon emissions.9 International travel has not returned to pre-pandemic levels but should continue to recover with the U.S. Travel Association projecting international inbound travel to the United States reaching 98% of 2019 levels this year, up from 84% in 2023.10 The increase is expected to offset modest declines in domestic leisure, which are still above pre-pandemic levels, according to HVS.11

Guests are looking for unique and special assets. “People are brand loyal but are also focused on Trip Advisor reviews and experience,” adds Jake Wurzak. In response to evolving customer preferences, brands have been diversifying their offerings. “Brands have been doing a great job of creating new concepts or striking deals with strategic partnerships as seen with Hilton’s recent agreement with AutoCamp, acquisition of Graduate Hotels, and launch of LivSmart Studios, ” notes Buffam.  

2. Limited New Supply 

Amidst challenging economic conditions, new hotel development remains subdued.12 We’ve observed that factors such as interest rates, economic slowdown fears, and escalating operating and material costs weigh heavily on developers. While we’ve seen few costs decline since the height of the pandemic, some of our sponsors report persistent increases in labor and material expenses, particularly in cement costs, which have surged 30%-40% above 2019 levels and show no signs of abating, according to Buffam of New Castle Hotels & Resorts. 

Consequently, new hospitality construction projects have experienced a downturn compared to pre-pandemic levels. Historically, the annual growth rate for supply has been approximately 2.3%; however, recent figures show a significant decline, with last year at 0.3% and this year projected to be 0.8%.13 This trend is expected to impact the future supply of hotels and could provide a potential tailwind for the industry.  

Moreover, additional constraints to supply in some markets, including measures aimed at curbing short-term rental operations such as Airbnb, the repurposing of hotels to accommodate migrants, and the implementation of new zoning laws, are further shaping the hospitality landscape. Consequently, existing hospitality establishments may stand to benefit from reduced competition, potentially enhancing occupancy rates and pricing leverage.14 

These unique supply dynamics are evident in New York City, drawing the attention of New York City-based Capstone Equities. Recent zoning laws, restrictions on short-term rentals, and the migrant crisis have significantly changed the supply landscape. “Pre-COVID, New York City suffered from oversupply. Mid-block, non-union, select service hotels were being built every year, adding 6% to 7% of additional supply,” notes Justin Adelipour, partner at Capstone Equities. As of October 2023, only two construction permit applications have been filed since the passing of this new law in 2021.15  The new regulations on short-term rentals have reduced listing on Airbnb by over 80% or approximately 19,000 units, while at the same time, approximately 16,000 keys or 140 hotels are being used to house migrants.16 

While some of the hotels being used to house migrants may come back online once the long-term contracts are over, many of these properties are generally older with some additional drawbacks, and over 60% are anticipated to be permanently closed or converted to another use.17 Brian Sparicino, President and CEO of Rebel Hotel Company, notes that the “migrant story will be here in New York for the near future. It will take some time to reverse course and return to normal. The compression caused from converting hotels to shelters allows more time for transient and business segments to rebound. This represents a favorable economic environment considering there is essentially no pipeline of new inventory coming anytime soon.” As a result of the diminished supply, CoStar recently increased its RevPAR projections for 2024, in some cases, particularly in the Village/Soho/Tribeca submarkets, from 6.0% to 11.1% for 2024.18 

3. Anticipated Increase In Transactions For 2024 

2023 saw the lowest level of transactions nationwide since 2012 (excluding 2020).19 Despite the number of trades being the second-most in history, the average deal size decreased to historic lows.20  CBRE projects short-term interest rates to decline by 100 bps in 2024, which has the potential to support higher hotel investment volumes.21 

We are also observing some distressed opportunities emerging in markets that show relatively favorable recovery outlooks. Notably, we have observed, in some cases, that sponsors acquired some assets that we consider to be at significant discounts, sometimes greater than 40% to their recent trades.22

Some sponsors have reported observing potential opportunities in preferred equity primarily due to relatively heightened capital needs, especially amidst lower hotel values and higher interest rates. In some cases, scheduled maintenance that was deferred during the pandemic to conserve cash, now mandated by some major hotel brands, adds to capital demands, driving the need for fresh injections of capital.

Our Outlook 

After experiencing fluctuations in RevPAR of almost 60% during the height of the pandemic in 2020-22, the hospitality markets finally began to stabilize in 2023, marked by growth of 4.6% in the Revenue Per Available Room (RevPAR).23 While from our perspective, the pandemic-induced V-shaped recovery created uncertainty about market direction, we currently perceive lower volatility that may provide industry players with more clarity for planning ahead.24  According to Buffam, “We can evaluate deals with more knowledge, understanding, and confidence now that 2023 has materialized.” 

For 2024, we believe that new development deals will be rare, thus limiting new supply to markets. As for acquisitions, sponsors report that the spread in price between what buyers and sellers are willing to transact is shrinking. Given the current market conditions generally characterized by sales occurring below replacement cost, we expect most hospitality deals on the CrowdStreet Marketplace to be value-add at this point in the cycle. 

For more information, read our full H1 2024 outlook for hospitality and other major CRE asset classes.

This article was written by an employee of CrowdStreet, Inc. (“CrowdStreet”) and has been prepared solely for informational purposes.  Nothing herein should be construed as an offer, recommendation, or solicitation to buy or sell any security or investment product issued by CrowdStreet or otherwise. This article is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation, or needs of any investor. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. CrowdStreet’s review process of an issuer, deal, investment type or strategy, market, or other investment criteria should not be construed as a recommendation or a solicitation to buy. All investors should consider their individual factors in consultation with a professional advisor when deciding if an investment is appropriate.


3  Ibid.
13  Wroten (n12).
18  CoStar. Hospitality Submarket Report: Village/Soho/Tribeca. Accessed 29 February 2024; CoStar. Hospitality Submarket Report: Village/Soho/Tribeca. Accessed 4 March 2024.
20  Ibid
22  Based on CrowdStreet Marketplace offerings, Offering Memorandums reviewed by CrowdStreet during investment screenings, and CoStar sales data.
23  Lloyd-Jones (n 2).
24 Ibid
Group 2010204
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