Q4 Hospitality Investor Sentiment Index shows increased frustration around market conditions, with many looking at alternative opportunities

Hospitality investors have reported growing confidence in the corporate sector for the first time in six months.

Responding to Questex's latest Hospitality Investor Sentiment Index, industry investment leaders expect hospitality’s corporate business to bounce back in 2024, with confidence growing 4.6 points to an index score of 52.8 in Q4 2023.

By contrast, while leisure travel will undoubtedly remain strong, socio-economic and climate change issues mean investors are predicting slower growth in this sector. Confidence in leisure demand in the next 12 months has fallen by 10.9 points to an index score of 44.4, the lowest since the survey relaunched.

The war in Ukraine, and the Israel-Palestine conflict are unsettling factors for international travellers and tourism, leading to nervousness among investors that it will have a further impact on decision making and cause further delays.

In addition, the seemingly climate-related wildfires in key leisure locations such as the Greek islands, the Canary Isles, Sicily, Turkey and the Algarve over the summer will undoubtedly have dented the confidence for leisure-based visitation to these locations.

These factors also sit alongside economic challenges faced by travellers with the rising cost of living and inflated prices from hotel and airlines as they sought to claw back some of their pandemic-led losses.

This shift in confidence means appetite for resort investment has shrunk by 6 points to 48.5, the lowest it has been this year, whereas focus on urban investments have seen an 11.3 point increase in the last quarter.

The focus on investment in urban markets means leading investors have returned to limited-service hotels with an 8.3point increase to an index score of 58.3. Factoring in ESG and the scarcity of prime sites for development, they are also exploring refurbishment and repositioning opportunities as well as adjacent spaces. The proposition of these opportunities have been boosted by the support of local governments. In Rome and Milan for example, municipal authorities have permitted office-led conversion projects enticing global developers into cities.

While the overall sentiment was one of ‘frustrated pessimism’ as major markets slow down, there are signs that hospitality investment is still buoyant.  Investors showed an increase in positive sentiment toward their focus on the sector relative to other asset classes and property sectors, up 10.1 points since Q3.

Speaking on the latest investor sentiment results, Joe Stather, VP market lead, operational real estate at Questex Hospitality, said “The Q4 Hospitality Investor Sentiment Index is a good barometer for the type of activity and market environment that we should expect for 2024, barring any social, political or economic curveballs between now and the end of the year.

“In an interesting but not unexpected turn, investors heads are turning to the corporate segment of the market, at the expense of a leisure market which is expected to plateau in 2024. There will likely be lower expectations regarding top line revenues which, with sticky cost inflation, will put even great pressure on profitability.

“With the potentially of slower market growth, and relatively high hurdle rates, we will see asset management remain in sharp focus, with many investors continuing to look to the tech stack and ESG as ways to create incremental income and value.”