Bay Area hotel purchases plunge amid inflation and price uncertainty

The Bay Area hotel buying market plunged in the first half of 2022 compared to the same period last year amid worsening inflation and rapidly rising interest rates.

According to a study provided to the news agency by Atlas Hospitality Group, total hotel purchases in the nine-county Bay Area totaled $660.5 million.

This is down 66.8% from $1.99 billion in hotel purchases in the first half of 2021, according to Atlas Hospitality research.

“Rising interest rates and inflation are making it harder to close deals,” said Alan Ray, president of Atlas Hospitality, which tracks the California lodging market.

Despite the easing of COVID pandemic restrictions and the corresponding increase in traveler numbers, challenges have arisen. But it’s not just the hotel market. Rising interest rates and inflation are also impacting the state’s housing and office markets, forcing some would-be buyers to reconsider.

The Bay Area hotel market appears to be significantly weaker than the statewide lodging sector.

In the first six months of 2022, California hotel purchases generated $3.45 billion in transactions, according to Atlas Hospitality.

The average price of a Bay Area hotel purchase in the first half of 2022 was $16.9 million, down 39.6% from the average price of a hotel purchase of $28 million in the first half of 2021.

“Many owners have retained ownership of their hotels and are waiting for the market to change,” says Reay.

As interest rates rise, buyers who need to obtain loans to finance their hotel purchases may become more inclined to push sellers to lower prices as a way to keep mortgage costs down.

However, hotel sellers may be looking to capture the same level of profit and return on investment as they did in 2021, when markets were stronger and interest rates were much lower.

“We see a gap between the expectations of buyers and sellers,” says Reay.

The average price per room for hotel purchases in the first half of 2022 was $239,900, down 8.2% from the average price per room for hotel purchases of $261,200 in the first half of 2021.

Investors purchased 41 hotels with a total of 3,277 rooms in the Bay Area in the first half of 2022, compared with 71 hotels with 7,787 rooms in the first half of 2021, according to Atlas Hospitality.