2023 Forecast: Hotel Real Estate

The hotel sector enters 2023 with a clear set of trends that will shape both investment decisions and operational strategies. Here are the key forecasts and areas investors and operators are watching closely.

Monetising Sustainability

Although ESG (Environmental, Social and Governance) has moved to the forefront of attention across the industry, the hotel sector has so far struggled to assign it a concrete monetary value. With growing research, empirical evidence and tools that enable more effective measurement of ESG impacts, we should begin to see sustainability reflected more clearly in pricing and valuation.

Winners and Losers in Turbulent Times

While a recession and rising cost of living will test the hotel performance recovery, a strong desire to travel persists, underpinned by sustained demand. The luxury and economy segments are likely to be less affected by economic headwinds — particularly in markets driven by leisure and domestic demand, or benefiting from favourable exchange rates.

Leaner, Greener Hotels

The impact of COVID-19, combined with the labour shortage, forced hotels to maintain lean operating structures and focus on rate growth rather than volume — benefiting the bottom line. Now hoteliers face a fresh challenge: inflation and the energy crisis. Although painful in the short term, this will drive unprecedented investment in technology, energy efficiency and the elimination of non-essential services, leading to even more efficient and sustainable operating models.

A Tale of Two Transaction Markets

Hotel sales are likely to split into two contrasting camps. The first, driven by lender and fund pressure, will see a higher number of motivated or distressed sales offering attractive but selective acquisition opportunities. Meanwhile, high-quality prime assets in hard-to-access markets will hold their value with minimal outward yield movement.

From "Wait and See" to "Fortune Favours the Bold"

Pressure to improve liquidity, combined with investors' need to deploy large amounts of recently raised low-risk, highly liquid capital, will ultimately drive a revival in investment activity — most likely in Q2–Q3 2023, when economies could begin to stabilise as inflation is brought under control. Bridging the gap between buyer and seller expectations will likely require at least one side to compromise.

Structured Transactions and a Multi-Layered Capital Mix

Traditional hospitality finance will remain selective in the short term, with lenders tightening criteria and the emphasis shifting from LTV to DSCR or EBITDA multiples. While alternative lenders such as debt funds will be eager to seize the opportunity, investors and motivated sellers will need to be creative — exploring joint ventures, earn-outs, vendor financing, or green finance structures.

Blurring the Lines Between Hospitality and Residential

Driven by the resilience demonstrated during the pandemic and the rapid evolution of mobile lifestyles, investors will continue to seek out non-traditional hospitality concepts that blur the boundaries between hotels, extended stays, co-living, student and residential accommodation.

The Priorities: Leisure and Lifestyle

Investors will continue to be drawn by the strong recovery and long-term growth prospects in leisure tourism, supported by elevated spending on experiences. Several funds launched towards the end of 2022 will deploy capital through 2023 into leisure-focused assets — with target assets expanding beyond resorts to lifestyle hotels in popular urban destinations across Western and Southern Europe, including Spain, France and Italy.