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

Key Takeaways:

Economy

• CBRE has positively revised its 2025 Real GDP forecast.
  CBRE revised its 2025 GDP growth estimate from a below-average 1.7% to an above-average 2.3%. Inflation is expected to be more persistent with a reacceleration to 2.5% in 2H25. The Fed Funds Target Rate is now expected to decrease by 80-110 bps by year-end 2025.
• Employment growth and wage gains are moderating.
  In October, employment growth grew 1.4%, down from 1.9% growth a year ago, while wage growth remained roughly 4%, around 139 bps higher than inflation. Real disposable income rose steadily at 2.7%, which could mean that consumers have discretionary income to spend on travel.
• CMBS rates declined despite flat credit spreads.
  Credit spreads remained at 1.8 p.p. y/y, but CMBS rates dropped to 7.6% from 8.6% a year ago. On a T3M basis, CMBS loan issuance increased four-fold from $0.5 bil. in Oct. 2023 to $2.0 bil. in Oct. 2024. The T3M loan count increased from 12 to 36, and the average loan size increased from $42.2 mil. to $54.9 mil over the same time period.

Current Trends

• October RevPAR increased 2.7% as demand shifted because of the election.
  A 1.1% increase in ADR coupled with a 1.5% growth in occupancy drove performance as election timing impacted results. All chain scales posted positive RevPAR in October, with outperformance in mid-priced hotels. Similarly, all location types showed positive growth except for resorts, which continued to normalize.
• Short-term rental demand grew 7.4% in October.
  Short-term rentals continued to take share from hotels, with demand growing 7.4% compared with a 0.8% increase in hotel demand. RevPAR growth for STRs was strong, up 8.5%, with ADR and occupancy increasing to 130% and 100% of 2019 levels, respectively, in October.
• Total hotel revenues grew 1.8% in Q3 2024 in line with the YTD trend of 1.9%.
  Despite positive total revenue growth in Q3, a 0.7 p.p. contraction in GOP margins led to a 1.1% decrease in profit dollars for the second year in a row. Growth in expenses like wages, insurance, and property taxes continue to outpace total revenue growth but growth rates appear to be moderating.

Food for Thought

• CBRE expects 0.5% RevPAR growth in 2024 and 1.7% in 2025.
  RevPAR growth in 2024 and 2025 is primarily driven by growth in ADR of 0.7% and 1.4% respectively. Occupancy is expected to contract 0.3% in 2024 and remain relatively weak in 2025, increasing only 0.3%. Urban locations, which lagged in recovery from the pandemic, are again expected to outperform resort locations in 2025.
• The pace of inbound international travel recovery has slowed.
  Outbound international travel increased to 122% of 2019’s level in October while inbound lagged at 90%. If the mid-single-digit growth in visitation continues, it is unlikely that inbound international travel will recover in 2025. Regionally, inbound travel growth on both coasts has slowed materially.
• TSA throughput increased 0.2% year-over-year in November.
  TSA throughput continues to be well above pre-pandemic levels, but growth is near zero. Similarly, google search trends for paid and loyalty redemption travel continued to soften down 5.7% and 1.8%, respectively, in November.

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