The record breaking five-year run of consecutive growth in global hotel transaction volumes will end in 2008, predicts Jones Lang LaSalle Hotels.
But the industry's underlying fundamentals remain sound and investment should still occur at steady volumes despite the credit crunch.
The brokerage's publication Hotel Investment Outlook recorded a total deal volume of almost $113bn in 2007, up 56% on 2006. But activity slowed dramatically in the last four months of 2007 as the sub-prime crisis took hold.
Debt market spreads in Europe, which had fallen to less than 100 basis points, rose quickly to between 200 and 250 basis point in the four to six weeks during which the sub-prime crises took hold. In the US, the rise was between 100 and 150 BP.
According to JLL, sellers at first withdrew assets from sale but, in some cases, are now appreciating that a price correction has taken place. Other sellers have decided to hold assets in anticipation of better pricing clarity.
Despite the caution by banks in lending, debt was being paid by investors and interest rates were, by historic standards, low.
JLL forecast that less leveraged buyers such as REITs would become more competitive and private equity might become net sellers during the year ahead. Other buyers set to become more prominent include Sovereign Wealth Funds and corporations in India and China.
Yields would rise after contracting to record low levels, sometimes as much as 200 BP below the cost of debt.