Fortune 100 firms, such as Amazon and JP Morgan, are requiring their workers to return-to-office five days per week in 2025. Although employee push-back has been significant, CEO’s are sticking to the plan. KPMG recently reported that CEO’s are hardening their stance on returning to pre-pandemic ways of working, with 83% expecting a full return to office within the next three years. According to CBRE, while return-to-work opposition exists, return-to-office at the right level is part of the solution to absorb some of the 964 million square feet of office space that remains vacant today. Industry experts estimate that over 30 percent of that vacant space will be deemed obsolete, creating opportunities for demolition, significant upgrades or repositioning of assets. Finally, as we touched on in our Q2 report, highly-amenitized, environmentally friendly Class A trophy properties continue to command very attractive rents across major markets (aka, the ‘Flight to Quality’). We can only hope that trophy project activity will resume in a more conducive macro-economic environment.

Average Daily Rate (ADR) and Revenue per Available Room (RevPAR) continue to climb YOY, and occupancy is near pre-pandemic levels in the mid and upper scale hospitality classes; however, increased operating costs are driving down profitability across all asset classes. At the American Lodging Conference, it was noted that there are almost 6,100 new hospitality projects in the pipeline, totaling over 700,000 new rooms. Brands are requiring owners to implement property improvement plans after a period of forbearance during the pandemic. Brands are also placing key money to encourage new activity to promote brand developments. Capital markets anticipate increased transaction activity in 2025.