U.S. Hotels State of the Union September 2024 Edition

Key Takeaways:

• Economy

  An upside surprise in Q2 GDP could lead to a more optimistic outlook for 2024.
  Q2 GDP growth of 3.0% exceeded CBRE expectations of 2.0%. CBRE increased expected growth in Q3 and Q4 to 1.3% and 1.1% from 1.1% and 1.0%, respectively. CBRE predicts inflation to remain more persistent and interest rates to be elevated, with the first rate cut expected in September.CMBS borrowing rates remained elevated at 7.4% but were off their highs.
  CMBS loan issuance increased materially from $0.6 billion in July 2023 to $1.7 billion in July 2024. While the average loan count increased slightly, the average loan size more than doubled from $53.9 million in July 2023 to $118.1 million in July 2024.
• Consumer risks remain as wage gains and employment growth slow.
  Unemployment ticked up in July to 4.3% from 3.5% a year ago as employment growth slowed to zero. The softening employment market appears to be weighing on consumer sentiment. Despite increases in nominal consumer borrowing, leverage ratios remain below pre-pandemic levels on both a real and nominal basis.

• Current Trends

  RevPAR fell 0.8% in July on the higher mix of leisure travel.
  July RevPAR fell because of a 1.1% decline in occupancy and relatively flat ADR, up only 0.3%. While leisure trends continued to normalize, upscale and upper-upscale chains in favored urban locations outperformed again in July. RevPAR for group and business-focused location types surpassed leisure destinations.June profits increased 0.9%, above the year-to-date decline of 1.0%.
  Total revenue growth of 1.3% was offset by a 110-basis point contraction in GOP margins. Insurance, wages , and property taxes are all increasing more than total revenues, leading to continued pressure on hotel margins.
• Short-term rentals posted healthy demand growth of 9.5% in July.
  In July, short-term rentals continued to take share from hotels, with demand growing to 16.1% of total share compared with 15.0% in July of 2023. STR RevPAR declined 0.9% because of a pullback in ADR coupled with flat occupancy. Revenue for short term rentals was 57% higher than 2019 compared with hotels which were 14% above pre-pandemic levels.

• Food for Thought

  CBRE reduced its 2024 RevPAR growth forecast from 2.0% to 1.2%.
  CBRE expects 2024 RevPAR to be bolstered mostly by ADR growth of 1.1%, driven primarily by growth in group, business transient, and international travel. RevPAR growth for urban and airport locations are expected to outperform while resorts are expected to lag in 2024.TSA throughput ended August at 105% of 2019 levels.
  TSA throughput increased 5.1% in August below the year-to-date average of 6.1%, but in line with July’s 5.2% growth. Despite continued strength in passenger volumes, Airport RevPAR only increased 0.5% in July.
• Inbound international travel continued to lag outbound at 86% of 2019.
  Outbound international travel ended July at 118% of 2019’s level, while inbound travel remained below 90%, weighing on demand. Travel from Japan and China continues to hover around 50%. Inbound travel trends to both coasts have been steadily recovering.

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