“Stay alive to ‘25” was a common refrain heard at industry conferences over the last two years. Now that 2025 is upon us, here are some topics to think about, plan for and maybe even worry about a little.
1. Will room rate growth beat inflation?
The CoStar forecast is clear: We expect the average daily rate to grow, but not by much. Currently, the forecast suggests that ADR will grow by 1.6% in 2025. I guess “anemic” is the way to characterize this growth rate. But at least we suggest that rates will rise.
The issue, of course, is that costs are rising as well. Oxford Economics proposes that the rate of inflation in 2025, as measured by the Consumer Price Index, will grow by 2.6% as of their December release. In other words, operators’ top line will not rise as fast as costs, which will likely affect the bottom line.
The national average hides the chain-scale variances, and here we suggest that higher-end hotels will continue to increase rates a little faster than the lower end. But “faster” is a bit of a euphemism: The luxury ADR forecast stands at 1.9%, while the economy chain-scale ADR forecast shows 0.2% growth.
So right now we do not think prices will rise above CPI levels, but there is certainly room for an upside surprise.
2. Will small meetings continue to drive full-service hotel results?
Workers are returning to offices, but the hybrid work environment is here to stay. The positive implication for the hotel industry is that a remote workforce still must get together to foster esprit des corps, literally “group spirit.” The best way — dare I say, the only way — to do this is in person. The publicly traded C-corps and REITs have stated on many of their earnings calls that small meetings drive unexpected positive revenues. The data supports their anecdotes: Through October, group occupancy for hotels with more than 1,000 rooms has grown by only 1%. For smaller hotels, with a room count of between 300 and 500, the group occupancy growth was 2.7% to date. Many of these meetings have 100 people or fewer on peak nights and only meet for a night or two.
One common issue revenue managers point out is that bookings for these smaller groups are not even “in the quarter, for the quarter” but rather “in the month, for the month,” so they are very hard to plan and forecast for.
But I guess at this point, it is OK to suggest that these meetings will happen and continue to drive results for full-service hotels.
3. Will international inbound demand rebound?
My favorite non-CoStar data set is the APIS I-92 Department of Commerce tracker of international inbound and outbound air passengers. The data is free and updated relatively quickly, roughly 6 weeks after a month ends. The data shows the impact of a strong dollar on consumer behavior. Through November, the number of international inbound passengers stood at 54.3 million, around 8.8% below 2019 results. Americans, however, went abroad with abandon, and the 66.7 million outbound traveler count is 21% above pre-pandemic results.
Members of the incoming administration have been vocal about their desire to stem and reverse illegal immigration. However, the rhetoric surrounding foreigners can have unintended consequences, and President Trump’s first term shows how it can affect travel flows. Oxford Economics analyzed international visitors to the US between 2017 and 2019 and showed that inbound travel growth slowed. For some areas of origin, such as Mexico or the Middle East, the number of international visitors declined.
Given the expected rhetoric from the White House and a continued strong dollar, it is not likely that the international inbound demand will rebound to pre-pandemic levels.
4. Will the number of hotels with ADR of over $1,000 continue to rise?
Few data points we published in 2024 created as much buzz as the count of hotels with a four-digit average rate. The Wall Street Journal picked up the story, and I have now seen it referenced by various outlets, from McKinsey to the Robb Report. And when talking to ultra-luxury hoteliers, they do not foresee a change in their ability to charge high rates. The argument goes something like this: “If our guests fly in on their jets that cost $50,000,000, charging them $2,000 a night is not a rate that is out of reach. But you better deliver the expected level of service and amenities.”
These rates are certainly out of reach for the ordinary traveler, but the less than 100 hotels in the U.S. that reported an ADR of over $1,000 in 2024 are catering to a very slim subset of consumers. And when we dig into our pipeline of new resorts and city hotels opening in the coming year, more high-end hotels will “join the club.”
We fully expect that the number of hotels with an ADR of over $1,000 will increase in 2025.
5. How will hoteliers react to climate change?
In May 2024, the National Oceanographic and Atmospheric Administration, or NOAA, forecasted a stronger-than-usual hurricane season. The announcement was followed by Hurricane Beryl, the earliest Category 5 hurricane on record, which formed in late June and hit Texas in early July. Hurricane Helene made landfall in September and was the deadliest hurricane since Hurricane Katrina in 2005. As of mid-December, the 2024 hurricane season had caused 400 deaths and over $220 billion in damage.
Hoteliers who remained unaffected by these events stood ready to provide food and shelter to the displaced and those who helped. Our occupancy data for hotels along highways and airports show how people flee the incoming weather and remain as rebuilding work gets underway.
The implications for hoteliers are two-fold. They need to be prepared for more extreme weather and higher insurance costs going forward. Getting ready for more extreme weather, with too much or too little water, with very high or very low temperatures, means having plans in place to care for guests and, as importantly, staff when extreme weather hits. In addition, property and insurance costs covering weather events will only get more expensive as insurance companies try to recoup their costs going forward. In some areas, property insurance will be unavailable as providers chose to do business elsewhere. The higher costs for preparations and insurance will ultimately hit the bottom line of hotel owners.
Hotel operators and owners will continue to prepare for and fortify against weather events. But they also need to plan for an ongoing rise in insurance costs.
So, these are my five questions and expectations for the next year. What are yours?
Jan Freitag is the national director for hospitality market analytics at CoStar.
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