U.S. Hotels State of the Union January 2025 Edition

Key Takeaways:

Economy

• CBRE raised its 2025 GDP forecast by another 10bps to 2.4%.
  This is above the long run average of 2.1%. Inflation is expected to be more persistent with a reacceleration from 2.3% in 1H25 to 2.6% in 2H25. The Fed Funds Target Rate is now expected to decrease to roughly 3.6% by the end of 2025, down 110 bps from the current level. RE 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 declined in November 2024 for the first time since 2021.
  In November, employment declined 0.4%, down from 2.1% growth a year ago, while wage growth remained at roughly 4.0%, around 133 bps higher than inflation. However, for the first time since March 2023 airfares increased 4.7% outpacing both wages and RevPAR, which could be a travel headwind.
• Interest rates have declined, yet loan count has remained the same.
  Despite falling rates, the number of CMBS loans has remained roughly the same. Meanwhile, loan size has been declining sequentially since July 2024. Overall CRE delinquency and hotel delinquency rates are converging, increasing to 6.4% and 6.9%, respectively.

Current Trends

• November RevPAR increased 0.6% slightly below the YTD average of 0.8%.
  While ADR continued to lag inflation, both ADR and occupancy increased in November. As a result of easier prior year comparisons, lower priced hotel RevPAR growth outperformed. All location types, except for Resorts, posted y/y RevPAR gains in November.
• Short-term rental demand grew 5.1% in November.
  STRs continued to take share from hotels, with demand growing 5.1% compared with a 0.8% increase in hotel demand. STR demand share reached a post-pandemic high for November of 14% compared with 13% a year ago. Higher interest rates and increasing supply are leading to slowing inventory growth with supply increasing 2.3% in Nov. 2024, down from 10.4% a year ago.
• October’s total hotel revenues were above the 2.1% YTD trend.
  A pull forward of demand related to the election may have led to a 4.0% increase in total revenues in October 2024, supporting a 3.4% increase in profit dollars. While costs have started to moderate, on a trailing twelve-month basis margins contracted 0.8 p.p. despite a 1.7% increase in total revenues.

Food for Thought

• Hotel wage growth moderated to 3.1% in October.
  Hotel wage growth slowed to 3.1% in October 2024, from 5.0% in October 2023, despite an increase in job openings per hotel. Job openings per hotel were 17.2 as of October 2024, above 15.5 during the same period in 2019, and below 18.5 a year ago.
• Inbound international travel has stalled at roughly 90% of 2019 as of Nov.
  Outbound international travel increased to 122% of 2019’s level in November while inbound lagged at 88%. It is unlikely that inbound international travel will fully recover in 2025 given the recent mid-single digit growth trends.
• TSA throughput rebounded in December, up 6.5% y/y.
  December’s 6.5% increase was well above the recent near-zero growth trends, signaling a strong holiday travel season. RevPAR performance of airport hotels had slowed in November, but stronger December throughput could signal stronger trends ahead.

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