The outlook for the U.S. hotel industry in 2024-25 remains strong, with upper-tier hotel segments expected to lead in revenue per available room (RevPAR) growth, according to a recent midyear report by STR and Tourism Economics. Despite minor adjustments to average daily rate (ADR) and occupancy projections, the overall performance forecast for the industry remains positive.
STR and Tourism Economics slightly revised their 2024 projections, lowering ADR gains by 0.1 percentage points while raising occupancy expectations by 0.2 percentage points. The forecast for RevPAR growth in 2024 remains steady at 2% year-over-year. Looking ahead to 2025, the firms maintained their forecasts with a 2% increase in ADR and a 2.6% rise in RevPAR, while also raising occupancy predictions by 0.2 percentage points.
Amanda Hite, President of STR, highlighted that the upper-tier hotel segments, particularly upper upscale and upscale, are set to experience the highest RevPAR growth in both 2024 and 2025. This trend is attributed to shifts in traveler behavior, with high-income households continuing to travel, albeit with a shift toward more international destinations. In contrast, midscale and economy hotels are feeling the impact of fewer lower-income travelers.
For 2024, STR and Tourism Economics project an occupancy rate of 63%, with ADR and RevPAR each increasing by 2%. The upward trend is expected to continue into 2025, with occupancy reaching 63.4%, ADR growing by 2%, and RevPAR seeing a 2.6% increase. The upper upscale, upscale, and upper midscale segments are anticipated to see more than 3% growth in RevPAR during this period.
Economic factors are also playing a crucial role in these forecasts. Aran Ryan, Director of Industry Studies at Tourism Economics, noted that while economic growth is expected to slow in 2025, strong household balance sheets, a gradual increase in business investment, and moderating inflation will create a favorable environment for moderate travel growth. The report also suggests that gains in international inbound travel, as well as business and group travel, will further support lodging demand in 2025.
Labor costs are another factor influencing hotel profitability. Hite mentioned that annual gross operating profit and EBITDA margins are expected to improve slightly in 2024, with a more significant increase projected in 2025 due to lower labor costs. However, according to the American Hotel and Lodging Association, U.S. hotels are on track to pay a record $123 billion in wages, salaries, and other compensations this year, representing a 4% annual increase. Additionally, the industry is facing labor challenges, with thousands of hotel workers across the country authorizing strikes in pursuit of higher wages.
Overall, the outlook for the U.S. hotel industry remains optimistic, particularly for upper-tier segments, which are well-positioned to benefit from changing traveler behavior and economic conditions in the coming years.
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