NASHVILLE, Tennessee — The latest outlook for the U.S. hotel industry "feels very familiar," STR President Amanda Hite said.
STR, CoStar’s hospitality analytics firm, and Tourism Economics maintained their overall U.S. hotel performance forecast for 2024 and 2025 with a few slight adjustments. The forecast downgraded its average-daily-rate projection by 0.1 percentage points to 2% while upgrading occupancy by 0.2 percentage points to 63%, leading revenue per available room steady at 2% growth for the year.
For 2025, the forecast also included an upgrade of 0.2 percentage points in hotel occupancy to 63.4%. ADR and RevPAR remain unchanged at 2% and 2.6% growth, respectively.
“Demand came in much stronger in the second quarter than what we forecasted, so that certainly helps," Hite said during the forecast panel at the 2024 Hotel Data Conference. "Within this ’24 forecast, we've lifted our demand expectations just slightly."
The upgrade in occupancy was a rounding issue more than anything, but it’s nice that occupancy came up a little for both years, she said.
RevPAR growth is solid, and it’s driven mostly by rate growth than occupancy, Hite said. The third quarter this year will see more occupancy gain than in the fourth quarter, and because ADR was weaker in the second quarter, there’s some downside risk for the metric as that’s what is going to drive most of the growth for the rest of the year.
“As we move into ’25, we'll see a little more occupancy gain in the first half of the year, but rate growth is really going to be the driver for us,” she said.
The forecast shows most of the RevPAR growth next year will be in the upper-upscale segment, lifted by strong group demand, Hite said. The luxury segment doesn’t have the most growth, but the forecast revised upward its RevPAR growth into slightly positive territory due to increased demand for the segment. Over the past five months, demand in this segment has grown at 8% or higher.
For the rest of the year, the midscale and economy hotel segments will see negative RevPAR movement, she said. It will improve heading into 2025, however.
US Market Performance
The top 25 U.S. markets continue to lead the way in terms of RevPAR gains, Hite said. The top 25 markets make up 36% of the supply in the total U.S., but they make up 45% of revenue for the industry. Next year, that should grow to 46%.
Outside of the top 25 markets, these markets are dragging down overall upscale performance, she said. There’s a lot of new upscale supply entering these markets, and that’s what’s causing the drag.
Looking at the markets where Sage Hospitality Group has a presence, the greater Washington D.C., market is performing well, and so is Houston, President Daniel del Olmo said. While there’s bifurcation between the top 25 markets and all the others, there’s bifurcation within the top 25.
For markets such as San Francisco, his company looks every year to see when demand is coming back, hoping it won’t be the same story.
“Even as we see some of these numbers in terms of RevPAR growth for both ’24 and ’25, I would say we were less than impressed with San Francisco in ’24, but we’re more hopeful for what will happen in ’25,” del Olmo said.
When looking at markets that are outperforming, Curator Hotel & Resort Collection President Jennifer Barnwell said staying in New York City can require calling in favors to try to find a reasonable rate when staying in Midtown Manhattan.
“I was just there in June and reached out to someone, and I still was paying almost $400 a night,” she said.
Portland, Oregon, is still in a tough situation, Barnwell said. The last thing it needed was another luxury hotel, and such an opening will have a big effect on the rest of the hotels that are already there and already struggling, she added.
Demand Segments
Hotel occupancy gains in the U.S. are happening on weekdays, and because of the lack of leisure on weekends, that trend is going to continue, Hite said. The weekend demand isn’t falling dramatically; rather, there just isn’t major growth on those days of the week.
Many leisure travelers have been heading to international locations, she said.
“I've heard from a lot of clients, ‘All of my consumers who are only coming out of Florida markets are now going to Mexico,’” Hite said. “That is certainly impactful.”
Groups are going to be the driver of demand for the rest of the year and into next year as well, she said.
Whether its group bookings or business transient meetings, Barnwell said Curator’s hotels have been seeing encouraging production and bookings with local clientele. Hoteliers need to look at who is in their markets and make sure they have the resources to interact with them and pursue them for business.
Even if people are working remotely, hopefully they’ll continue to have interest in meetings at least quarterly, she said.
On the leisure side, that’s where Curator is seeing some price sensitivity and less demand on weekends, creating a big gap, Barnwell said.
“The question is, what are you going to do to try to mitigate that gap?” she said. “It’s difficult, because the leisure rates you’re getting are higher generally than the group and [business transient] rates that you’re getting now. You’ve had to really look at your team and your resources and your online strategies to make sure that you're trying to mitigate that gap.”
Sage’s group base for the rest of the year is up 6% year over year heading into 2025, making it close to 20%, del Olmo said. That’s building confidence the company will have a stronger base heading into the new year.
In regard to price sensitivity, leisure travelers even in the higher segments are questioning whether they should be paying $2,500 for an experience if it’s not worth that price, del Olmo said.
“So, the normalization taking that leisure business and that rate, I think it’s just going to be something that we have to really think of in terms of how that is going to impact the rest of the year, going into '25 and beyond,” he said.