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

Key Takeaways

Economy

• CBRE is forecasting 2.4% 2025 GDP growth above the 2.1% long run.
  Inflation is expected to decrease in 2025 dropping to 2.5% down from 2.9% in 2024. The Fed Funds Target Rate is expected to decrease to 80 bps by the end of 2025 to 3.9%. Employment is expected to pick up in 2025 increasing 0.6%.
• Employment gains in January were the strongest since Q4 2023.
  In January, employment rose 1.7% and wages grew 4.1%, around 106 bps higher than inflation. However, the 7.1% and 4.5% increases in airfares and RevPAR, respectively could be a travel headwind. Disposable income growth slowed to 1.8% in January.
• CRE delinquency rates surpassed that of hotels for the first time in January.
  In January, lodging delinquencies were 6.2% lower than the overall CRE delinquency rates which stood at 6.6%. Special servicing rates rose 130 basis points year-over-year from 6.9% in January 2024 to 8.2% in January 2025.

Current Trends

• January RevPAR increased 4.5% driven by increases in rate and occupancy.
  A 3.4% increase in ADR coupled with a 1.0% increase in occupancy led to another month of strong RevPAR growth in January. Sporting events, natural disasters and the inauguration helped to buoy rates and occupancy in January particularly for luxury hotels which experienced a 12% increase in RevPAR.
• Alternative lodging sources continue to take share from traditional hotels.
  Short-term rental demand share reached 13.5% in January 2025 compared with 11.3% at the beginning of 2020. Similarly to hotels, short-term rentals experienced strong rate growth and occupancy expansion in January with RevPAR increasing 8.1%.
• Profit dollars increased 11.8% in December far outpacing the full year trend of -0.2%.
  Strong RevPAR growth in December resulted in the highest total operating revenues increase since March 2023, up 6.4%. Despite mid-single digit revenue growth supporting margin expansion in December, expense growth outpaced total revenue growth in 2024 resulting in a 0.4 pp. contraction in TTM profit margins resulting in declining profits in 2024.

Food for Thought

• CBRE forecasts RevPAR growth of 2.0% in 2025 accelerating to 2.6% in 2026.
  In 2025, CBRE expects a 1.6% increase in ADR and a 0.3% increase in occupancy to result in a 2.0% growth in RevPAR. Urban locations are expected to outperform other location types driven by improved international inbound travel and increases in business transient and group travel.
• International travel imbalance unlikely to normalize in 2025.
  Outbound international travel rose 8.5% y/y outpacing the 5.4% y/y growth in inbound visitation, making normalization of the international travel imbalance unlikely in 2025. in January, The growth rate of inbound visitation to both East and West coast markets has slowed materially since last year. Travel from Japan and China is slowly recovering.
• TSA throughput up slightly 1.0% in February, excluding the Leap Year.
  February passenger throughput was 107% of 2019 levels a decline from a year ago when throughput stood at 110% of 2019 levels owing to Leap Year. Although wage growth continues to outpace inflation, rising airfares could be a headwind to travel in the 2025.

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