ATLANTA — Market volatility, wavering consumer confidence and overall uncertainty are making it difficult to forecast where the U.S. hotel industry is headed.
U.S. hotel demand isn't as strong as it looks, said Jan Freitag, national director of hospitality analytics at CoStar Group. While preliminary February CoStar hospitality data shows total U.S. hotel demand is up 1.4% year to date, that's heavily influenced by an 11.3% increase in 13 Southeast U.S. hurricane markets and a 5.7% demand increase in greater Los Angeles. Beyond the remaining top 25 U.S. hotel markets — where demand year to date through February is up 2.1% — the remaining 133 U.S. hotel markets only reported 0.2% demand growth over the same period.
"Unfortunately that, I think, is going to be the tenor for the remainder of the year," Freitag said on the "Key Statistics Shaping Hospitality in 2025" panel at the Hunter Hotel Investment Conference. "We are going to see a top line that looks pretty good, but then you have to un-layer it and say, 'Oh, underlying that is maybe not as strong of a hotel industry as we'd like it to be.'"
It's possible the U.S. hotel industry could see pullback in leisure demand in 2025, said Mark Lomanno, partner and senior adviser at Kalibri Labs. The leisure segment accounts for about 55% of U.S. hotel demand in the last 18 months and has "really propped up the industry over the past couple of years" since leisure guests stay longer at hotels and are less price-sensitive, he added.
"If that transient leisure demand slows down a little bit, in order to replace that, you can replace it with either corporate or group, but they don't stay as long," Lomanno said. "So it's not a one-to-one relationship. You don't replace one leisure traveler with one commercial traveler. ... Our view is that the leisure traveler is going to be probably flat. There's not going to be a lot of growth in leisure travel in 2025, so that means in order for occupancy to improve or even stay the same, there has to be the commensurate, either similar [demand growth] in corporate and group, or a little bit more."
U.S. hoteliers should also expect more "bifurcation" in 2025 just like in 2024, where hotels in the luxury and upper-upscale classes significantly outperform hotels in lower-tier segments such as midscale and economy, Freitag said.
"The luxury traveler is still saying, 'Yeah, I own my own house, and it's worth a lot more than in '19. I'm in the stock market that that's doing quite well. And I booked this trip probably in December or in November, for January and February. And yes, life is pretty good,'" Freitag said. "But on the lower end, where the American consumer is maybe talking about egg prices, ... when people are on a budget, all the forces of high inflation are eating into their travel budget, so room demand on the lower end is flat."
In general, U.S. consumer sentiment looks a lot different near the end of the first quarter of 2025 than it did a year ago, Freitag said. Even if Americans don't outright cancel their trips, they could tweak them significantly to cut back on their travel spend.
"Inability to plan makes you take a pause, and I think that's what consumers are doing. I still think that the next 90, 180 days are just going to be bumpy," he said.
The international demand impact, or lack thereof
For the past several years, a strong U.S. dollar has given American travelers confidence to book international trips to Europe, Japan and elsewhere, Freitag said. In 2024, U.S. outbound international demand rose 21%, but international inbound demand — non-U.S. residents coming to the U.S. for vacation — dropped 8%. Freitag also pointed to the anti-immigration policies of the second Trump administration as well as how border agents have detained a small number of international visitors who were trying to enter the U.S. legally. Combined, there are enough headwinds that could further depress U.S. hotel demand from international tourists again this year.
"If they don't feel welcome, they're not just not going to come," Freitag said. "I'm super worried about the rhetoric of that and its impact on international inbound, as we have seen already."
Lomanno added that the current U.S. political climate could make some Americans trade their international trips for domestic trips, which could boost U.S. hotel demand this summer.
"Regardless of your political beliefs, I think people in the rest of the world are a little unsure about who Americans are these days, and they have every reason to think that," Lomanno said. "So I wonder if some people are like, 'You know what? I don't want to answer questions about the election. I don't feel like talking about any of that. If I stay here, I don't have to deal with it.'"
The rise of short-term rentals
Meanwhile, alternative accommodations such as short-term rental units hosted on Airbnb or Vrbo might be a bit insulated from the headwinds affecting hotels. Jamie Lane, senior vice president of analytics and chief economist at AirDNA — which tracks performance trends of alternative accommodations — said year-over-year monthly demand and booked nights of short-term rentals have stayed strong, in some areas even outpacing hotels.
"In urban areas, we saw short-term rental demand up 0.4%; urban demand for hotels in those same locations was up 2.5%. If we look at demand for hotels in small and mid-sized cities, where we see 10%+ growth in short term rentals, demand was actually negative for hotels," Lane said. "If you can't beat them, join them. If you can beat them, double down. We're seeing short-term rental operators double down on where they can beat hotels and where they can differentiate."
The demand for larger short-term rentals is also on the rise as consumers flock to book listings with three, four or five or more bedrooms, Lane said. Plus, demand for short-term rental stays priced at more than $1,000 per night has doubled since 2019.
"What's really interesting with short-term rentals is we essentially have the ability to reinvent ourselves based on demand patterns," Lane said. "Over the past year, there were almost 700,000 new listings added onto Airbnb and Vrbo. There also were about 640,000 listings that were removed. So only a net increase of 60,000 listings, but the shape of supply essentially changes by a third every year, based on where we see demand going and the types of rooms that people are booking."
Rising expenses for hoteliers
On the operating front, typically hotel expenses rise at a pace higher than the rate of inflation in the U.S., said Robert Mandelbaum, research director of CBRE Hotels Research. But in 2023 and 2024, hotel revenue growth lagged the pace of inflation and fell behind expense growth. That's evidence that the leaner hotel operating models that came about during and immediately following the COVID-19 pandemic no longer work.
"Coming out of COVID, in 2021 we saw revenues rise and we saw expenses decline. You think about cuts and services and amenities, less housekeeping, limited continental breakfast in the morning. Well, that's a great recipe, raising revenues, declining expenses," he said. "In 2022, they started to recover. We saw expenses rise, but we had great revenue growth over COVID.
"So now all of a sudden, we're achieving near record-high profit margins. And I think people started to say, 'Hey, wait a minute. Maybe this is the new norm. We can operate hotels at 29% EBITDA margins. You know, 35% to 40% [gross operating profit] margins. Well, that wasn't sustainable. And again, as we saw the past two years, due to that lack of revenue growth, we're now behind the pace of inflation, and we're behind in terms of covering expense growth."
But that's not to say hoteliers can't adjust their profit-and-loss statements and rebalance their operating models, Mandelbaum said.
"If you look at the long-run history, expenses have grown over the pace of inflation, but it was controlled last year, so I'm optimistic that hoteliers, in general, will control expenses to the best of their ability," Mandelbaum said.
Historically, labor costs are the highest expenses in any business. Employee wages have been increasing in U.S. hotels over the past few years, but Freitag suggested any sizable impact immigration policies have on reducing the hotel workforce could come back to hurt the hotel industry later.
"In the back of house, a third of housekeepers are non-U.S. born. We need immigrants to help us do the services that we provide as we keep charging higher rates," he said. "But if we don't have people, or if other industries see an exodus of workers in the construction industry, in the cleaning services industry, they will increase their wages, which means we will have to increase our wages."