Higher-End Hotels Will Drive Industry Performance, CoStar and Tourism Economics Forecast

(Illustration courtesy of Pixabay via Pexels. Inset photo courtesy of Walker & Dunlop)

Higher-end hotels will continue to drive industry performance, according to CoStar, Washington, D.C. and Tourism Economics, Philadelphia.

The two hotel data firms made minimal adjustments to their growth forecast for the sector.

Projected gains in average daily rate and revenue per available room were unchanged from the previous forecast at 1.6% and +1.8%, respectively. Occupancy for the year was raised one basis point to 63.1%.

“While business optimism is on the rise, economic data has not changed significantly from our previous forecast,” STR President Amanda Hite said. “The stronger performance seen in the fourth quarter was driven by one-time factors including holiday travel compression and weather-related events, and does not constitute a change in trend. Additionally, the impact of the new administration has not been factored into the forecast, as significant policy changes have yet to be implemented, and any projected effect of those changes remains unclear. Thus, our forecast is relatively unchanged overall with minor tweaks among the chain scales.” She noted she expects higher-end hotels to drive industry performance in 2025.

Tourism Economics Director of Industry Studies Aran Ryan said economic conditions should provide a “favorable backdrop” for travel activity in 2025. “Unemployment is low, inflation is slowing, consumers are spending–particularly those in higher income households, and business investment activity is solid,” he said. But he cautioned that Trump Administration trade and immigration policy priorities present downside risks, particularly to inbound travel, for example through trade war responses, visa impediments and general border and policy uncertainty.

Hite said hotel labor costs are forecasted to stabilize in 2025 as hotels have adjusted operations to current labor trends, and these lower labor margins will allow for slightly better GOP margins. “With continued growth in groups and business travel, Food and Beverage departments are expected to report some of the highest growth rates this year,” she said. “Rooms and undistributed operating expense growth will moderate, though utilities departments will almost certainly see increases.”