Hotel Financing Trends: What’s up for 2023?

Aareal Bank's Kimberly Yoong writes the hotel financing industry faced turbulence in 2022 due to the pandemic, political instability, and inflation which led to a rise in interest rates and focus on debt serviceability of loans. This resulted in restrictions on new financings and higher financing costs, leading some investors to reconsider their strategies and a slowdown in the hotel transaction market. In 2023, the hotel industry is expected to remain robust as demonstrated by its quicker than expected recovery, but a keen eye on market trends and solid industry know-how will be key to navigating the uncertainty.

2022 was a tumultuous year of economic uncertainty, political instability, and an endlessly lurking pandemic; during which, inflation soared and interest rates saw hike after hike in attempts to tame inflationary pressures.

For lenders, the rapid rise in interest rates shifted the focus of many towards the debt serviceability of loans, which in some cases led to restrictions on new financings in terms of loan quantum and/or covenant structures. The heightened risk environment led to an upward pressure on loan pricing and contraction in availability of debt capital, particularly in the hotel financing space as some lenders unfamiliar with the sector sought comfort in asset classes they may have perceived to be less risky.

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The Hotel Yearbook 2023 - Annual Edition

As we have embarked on 2023, it is evident that the hotel industry has made a robust recovery from the pandemic. Occupancy and pricing have returned to their pre-pandemic levels. However, the future of our industry is contingent on how nimble the hospitality sector can be in adapting to ongoing innovation, changing market conditions, evolving consumer preferences, new staffing challenges, and sustainability realities. These uncertainties are the new normal in an unpredictable world.
www.hotelyearbook.com/edition/2023.html