Private equity and venture capital-backed deals in the global hotels, resorts and cruise lines sector are expected to decline for a third consecutive year in 2024 as higher-for-longer interest rates thwarted investment activity.
Between Jan. 1 and Sept. 26, global private equity transactions totaled $1.10 billion across 70 deals, or about 36% of the $3.02 billion invested across 124 deals in 2023, according to S&P Global Market Intelligence data. Both transaction value and volume have been declining since the peak of deal-making in 2021.
Investment activity in the sector surged in 2021 but has since slowed following the rise in interest rates globally, "which widely pushed large core and core-plus investors to reduce their level of new equity investments, instead using their capital to re-equitize existing investments and seek debt opportunities," said Adam MacLeod, a partner at real estate investment firm Castleforge.
As economies continue efforts to reduce inflation and interest rates, investors are expected to pivot away from fixed income back to equity, MacLeod said.
Across hospitality, MacLeod expects select service and extended stay offerings to show promising performance.
"Select service hotels tend to be fairly resilient in the face of macroeconomic headwinds, and they were better equipped to handle the rising payroll costs that other sectors have faced. Extended stay hotels are also poised to grow, as the changing nature of work expands workers' options for leisure travel, MacLeod said.
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"A potential incremental reduction in interest rates could further boost investment interest, especially from dedicated private equity funds eager to deploy capital in this sector," said Braden Mark, travel, leisure and hospitality industry leader at KPMG.
"We are seeing a pullback in travel, leisure, and hospitality performance—not a degradation—but a normalization that indicates the sector is stabilizing," Mark said.
Leading region
Targeted companies were mainly in Europe with $563.8 million in 36 deals. The US and Canada had a combined transaction value of $482.7 million across 19 deals.
Europe is experiencing a strong tourism recovery, with flight arrivals reaching 2019 levels, MacLeod said, adding that the growth of the American and Chinese middle classes, along with currency fluctuations, enhances Europe's competitiveness in the tourism market.
Largest deals in 2024
The largest deal of the year through Sept. 26 was Certares Management LLC and Belcourt Capital Partners' acquisition of Hilton Boston Back Bay in a $171 million deal.
The second-largest transaction was Paris-based Famille C Venture's $141.1 million investment in Evok Collection L.
