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  • Writer's pictureRealFacts Editorial Team

U.S. Hotel Market Forecast for 2024-25 Significantly Downgraded


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STR and Tourism Economics have significantly downgraded their forecast for the U.S. hotel industry for 2024-25 due to underperformance in early 2024. The revised projections, announced at the NYU International Hospitality Industry Investment Conference in New York City and reported by Noelle Mateer of Hotel Dive, indicate lower-than-expected gains in key performance metrics such as Average Daily Rate (ADR) and Revenue Per Available Room (RevPAR).


The updated forecast shows a decrease in expected gains for ADR and RevPAR by 1 percentage point and 2.1 percentage points, respectively. Additionally, it predicts a year-over-year decline in occupancy rates, which contrasts sharply with earlier growth expectations. STR President Amanda Hite noted that the higher cost of living is reducing the ability of lower-to-middle-income households to travel, thereby diminishing demand for budget-friendly hotels. In contrast, demand for upscale and luxury hotels remains robust.

Previous forecasts by STR and Tourism Economics anticipated an increase in occupancy for 2024. However, the revised outlook presents a more pessimistic scenario. For 2025, projections for ADR and RevPAR growth have also been adjusted downwards by 0.8 and 0.9 percentage points, respectively.


Currently, STR anticipates a 2% growth in the U.S. RevPAR for 2024 and 2.6% for 2025, down from the earlier projection of 4.1% and 3.5%. ADR is expected to rise by 2.1% in 2024 and 2% in 2025, compared to previous forecasts of 3.1% and 2.8%.


“We have seen a bifurcation in hotel performance over the first four months of the year, which we don’t believe will abate soon,” said Hite. She noted that while demand for upscale and luxury hotels remains strong, their pricing power has weakened due to changing travel patterns and economic factors.


Increasing operating expenses are further squeezing hotel profit margins. Aran Ryan, Director of Industry Studies at Tourism Economics, pointed out that elevated interest rates and slower wage growth are affecting the spending power of middle- and lower-income consumers.


Ryan expects moderate travel growth to resume, driven by a tempered economic expansion and the continued recovery of group, business, and international travel. However, higher labor costs are expected to remain a significant challenge, with labor expenses projected to account for about one-third of total revenues for the rest of the year. Upper midscale chains are expected to fare better, maintaining the lowest labor costs and thus stronger profit margins.


These adjustments reflect broader industry challenges. For example, Caesars Entertainment has reported significant impacts from rising labor costs, contributing to increased operating expenses. The American Hotel & Lodging Association projects that hotels will pay $123 billion in wages, salaries, and other compensations in 2024, a 4% increase from the previous year.


Despite these challenges, CBRE has projected a potential 3% growth in U.S. hotel RevPAR for the remainder of 2024. This indicates that while the industry faces significant headwinds, opportunities for growth remain for those who can navigate the economic landscape effectively.

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