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

Key Takeaways

Economy

• CBRE raised its 2025 GDP growth forecast to 2.4% from 1.7%.
  The revised growth forecast is above the long run average of 2.1%. CBRE expects inflation to be more persistent in 2025, up 20 basis points from October’s forecast with reacceleration in 2H25. CBRE expects interest rates to fall to 3.9% by Q4 2025 from 4.7% in Q4 2024.
• Employment gains were modest in December, increasing 0.3%.
  In December, unemployment reach 50 bps above 2019 levels while wage growth dropped to 3.9%, around 103 bps higher than inflation. However, a year-over-year increase in airfares outpaced both wages and RevPAR which could serve as a headwind to travel.
• CMBS hotel interest rates and credit spreads are declining y/y.
  Trailing 3-month spreads declined 0.2 pps in December from 1.9 pps a year ago to 1.7 pps. Interest rates fell to 7.3% in December 2024 from 8.2% in December 2023 helping to drive a year-over-year increase in the number of CMBS loans from 45 to 52. Loan volumes rose from $1.3 billion to $2.2 billion.

Current Trends

• December RevPAR increased 2.6% above the average of 1.0% in 2024.
  While ADR continued to lag inflation, a 2.3% increase in ADR coupled with a 0.2% increase in occupancy resulted in RevPAR gains. All location types recorded RevPAR gains during the month with resorts showing the most improvement. On a year-over-year basis, chain affiliated hotels outperformed independents in December.
• Alternative lodging sources continue to take share from traditional hotels.
  Short term rental demand share reached 13.7% in December 2024 compared with 11% in December 2019. During the quarter, revenue for cruise lines, casinos, and short-term rentals increased to 30%, 47%, and 70% above 2019 levels, respectively, outpacing Q4 hotel revenue growth which was 20% above 2019.
• Profit dollars increased 2.1% in November above the YTD trend of -0.5%.
  While operating performance has been volatile in 2024, total operating revenues increased 2.6% in November above the YTD growth rate of 2.1%. While expense growth has started to moderate, expenses are still increasing faster than revenue growth, causing a 0.7 pps contraction in profit margins on a trailing twelve-month basis.

Food for Thought

• GDS and group demand channels have fully recovered to 2019 levels in Q4.
  However, corporate demand grew 5.6% compared with 0.2% growth in group demand. Year-over-year, OTA demand growth outpaced Brand.com demand in Q4 for the second quarter in a row. However, Brand.com continued to gain share over other channels increasing 3.0 percentage points since Q4 2019.
• Inbound international travel growth reached above 90% in December.
  Outbound international travel increased to 125% of 2019’s level in December while inbound lagged at 93%. Although inbound visitation from Japan and China reached a post pandemic high of 58.4% in December, the growth of inbound visitation to the East and West coasts has slowed materially since last year.
• TSA throughput growth slowed in January, up 1.7% year-over-year.
  December’s 6.6% increase was well above the recent growth trends, evidence of a healthy holiday travel season. The stronger December throughput was reflected in the RevPAR performance of hotels in airport locations which increased 3.5% in December.

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