As 2024 ramps up, the capex market in the hospitality sector is decidedly mixed. On one hand, the increased costs of capital impacting deal flow has reduced the number of transaction-related renovations and has constrained the amount of new development and construction. On the other hand, the backlog of deferred PIPs from the pandemic era cannot be deferred any longer and is providing a steady business for the capex industry. While design firms and consulting firms have work to sustain them and are not cutting fees, many firms reduced staff during the pandemic and are hesitant to increase it now, resulting in very lean resourcing on projects. Construction costs remain high, though anecdotally contractors are starting to see more gaps in their pipelines in the latter half of 2024 and beyond. Looking at FF&E supply chains, while most of the post-pandemic logistical issues that delayed projects have been resolved, the world is now grappling with new shipping challenges at the Panama and Suez Canals.
The net effect of these somewhat contradictory and countervailing forces is a fragmented capex industry that offers both the promise of a great capex value buy and the peril of blown budgets and missed deadlines. In this challenging, uncertain environment, we are advising clients to minimize their risk and maintain optionality through a few strategic directions:
- Invest early in planning and design to have "shovel-ready" projects. Upfront fees pale versus overall budgets but carry less risk and provide long-term value.
- Cast a wide contractor/consultant net. Aggressively priced bids sometimes come from unlikely places. Vet the actual project teams.
- Build exit strategies allowing flexibility as markets shift. Most large projects run 18-30 months. Regular off-ramps let you pivot while preserving work value.
With preparation and discipline, one can steer around pitfalls and still tap opportunities in this challenging climate.