Florida’s resilience makes it a great hedge: JLL

The Florida lodging industry has taken a unique trajectory as compared to the broader U.S. lodging market over the past decade, according to a JLL report, particularly in the years following the pandemic. Accelerated RevPAR growth (despite substantial supply deliveries) and continued investor conviction in long-run performance and quality of Florida hotel investment (despite elevated interest rates and uncertainty) help the state’s lodging industry to stand out.

Among other key Florida trends identified by JLL in its May 2024 State of the Florida Lodging Industry:

Florida hotels not only track with inflation, they beat inflation – exposure to Florida hospitality remains a superior hedge. Eight of the Top 10 Florida lodging markets (and all of the Top 15 submarkets) experienced ADR growth above and beyond U.S. inflation from 2019 to 2023, reinforcing that exposure to Florida hospitality remains a superior hedge against inflation for investment cash flow as compared to that from other markets and real estate asset classes, even in times of elevated rates of inflation.

A recent conversations with investors, expectations for no more rate hikes, and indications of a return to stabilized RevPAR growth in 2024 give us optimism that harmony will return to the investment market and significant amounts of capital will be on the move in the near-term.

JLL Hotels & Hospitality

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Florida hotels find a way to preserve revenue growth despite substantial supply deliveries. Every single top market and submarket, nearly all of which watched supply growth outpace demand growth from 2014-2023, were able to post overall annualized growth in RevPAR over the period. This demonstrates the top Florida lodging markets’ unique abilities to preserve RevPAR through ADR growth when occupancy growth is more challenging, providing some comfort and security when assessing forward-looking supply pipelines.

Full-service hotels dominate the recent deliveries and forward pipeline in Florida’s top markets, anticipating higher-rated demand. Fully, 35% of 2020-2023 supply deliveries in the Top 10 Florida lodging markets (50% in the Top 15 submarkets), and 60% of all hotel rooms currently under construction in the Top 10 markets (80% in the Top 15 submarkets) are within full-service hotels. This speaks to investor expectations for a continued shift towards higher-rated demand and clientele in these markets going forward.

Smaller deals, but higher sale prices per-key – smaller equity checks preferred but conviction in performance and quality persists. Florida experienced a substantial decrease in average hotel transaction size (number of keys and total transaction value) from 2020 to 2023. Interestingly, the state conversely posted a higher average price per key in the post-COVID years. This appears to illustrate an investor willingness to accept the tradeoff posed by smaller hotel deals: buying on a higher price per key basis. That willingness underscores that, while investors are avoiding overexposure and large equity checks at present, strong conviction remains in the quality and long-term value of individual Florida lodging assets.

Capital markets disruption chills liquidity, but harmony (and transaction volume) are poised to return. A marked decrease in liquidity from 2020 to 2023, particularly for larger assets, indicates a greater-than-normal disparity between buyer interest and owner willingness and desire to exit. To the positive: recent conversations with investors, expectations for no more rate hikes, and indications of a return to stabilized RevPAR growth in 2024 give us optimism that harmony will return to the investment market and significant amounts of capital will be on the move in the near-term.