Development

Investment in Canadian hotels continued to rise in 2024 with transaction volume exceeding $2 billion – 17% above 2023 levels. Momentum was fuelled by a dynamic rotation of market players driving significant liquidity, cementing hotels as a leading alternative asset class within Canada’s commercial real estate (CRE) sector.

This article provides an overview of the use and application of capitalization rates and rooms revenue multipliers in the valuation of limited-service hotels, as well as recent trends for these metrics, as researched and compiled by U.S. Hotel Appraisals and HVS.

The asset-light model, where major hotel brands allow owner-investors to use their brand, has proven successful since its first implementation by Marriott in 1993. This model enables companies to expand without heavy capital dependence, thus presenting an attractive investment strategy in the hotel industry.

The U.S. select-service and extended-stay hotel sectors are projected to remain strong investment options in 2025 and beyond, according to a report by JLL’s Hotels & Hospitality Group. The sector’s robust performance, lean operating model, and outsized yields relative to other commercial real estate sectors are attributed to its attractiveness to investors.

Despite another challenging year in many respects, the global hotel industry remained resilient in 2024. Through November, global hotel demand reached a staggering 4.8 billion room nights, 102 million more than 2023, resulting in Revenue per Available Room (RevPAR) growth of 3.7%.

The Q4 2024 Global Hotel Construction Pipeline Trend Report from Lodging Econometrics reveals a record-breaking project count of 15,820 projects, marking a 4% increase in projects and a 3% increase in rooms year-over-year.

Over 72% of investors plan to increase their hotel investments in the Asia Pacific region in 2025, with Japan, Singapore, and Australia witnessing a boost in tourism.

The Middle East’s total hotel pipeline stands at 619 projects/155,428 rooms, marking a 2% year-on-year increase in projects and a 6% rise in rooms.

The European hotel sector is experiencing a surge in growth, with 1,661 projects in the pipeline and a 26% increase in property conversions at the end of Q4 2024.

China’s total hotel construction pipeline is stable at 3,779 projects as of Q4 2024, with the upper midscale segment dominating the growth.