Analysts Downgrade U.S. Hotel Forecast

(Illustration courtesy of STR/TE)

Two hotel sector data firms, STR and Tourism Economics, significantly downgraded their 2024-2025 U.S. hotel forecast.

“The latest revision reflects lower-than-expected performance thus far in 2024 as well as lessened growth projections for the remainder of the year,” STR and Tourism Economics said in a joint statement.

For 2024, projected gains in average daily rate and revenue per available room were downgraded 1.0 percentage points and 2.1 percentage points, respectively. STR and TE now forecast occupancy for the year will decline after their previous forecast projected year-over-year growth in the metric. For 2025, the firms kept an occupancy growth projection in place, but made downward adjustments to ADR (-0.8 percentage points) and RevPAR (-0.9 percentage points).

“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 STR President Amanda Hite. “The increased cost of living is affecting lower-to-middle income households and their ability to travel, thus lessening demand for hotels in the lower price tier.”

Hite noted the hotel sector’s upscale through luxury tier is seeing healthy demand, but pricing power has waned given changes in mix and travel patterns and to a lesser extent, economic conditions.

“Still-elevated interest rates and easing wage growth have contributed to cautious business investment and pinched spending by many middle- and lower-income consumers,” said Aran Ryan, director of industry studies at Tourism Economics, “Looking beyond this near-term pull-back in demand at lower-tier properties, we expect moderate travel growth to resume, supported by a tempered economic expansion and the continued rebound of group, business, and international travel.”

Hite said higher operating expenses led STR to forecast lower gross operating profit margins. “Labor costs are projected to be nearly 33% of total revenues through the remainder of 2024 and will have the greatest impact on GOP margins,” she said. “Upper-Midscale chains are expected to maintain the lowest labor costs, and thus the most competitive GOP margins for most of 2024, which follows pre-pandemic trends.”