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

Key Takeaways

Economy

• CBRE cut its 2025 GDP outlook to 1.9% following our 4Q hotel forecast release.
  This is below the long run average of 2.1%. Inflation is expected to be more persistent. CBRE raised its forecast for CPI growth by 30 bps to 2.8%. The Fed Funds target rate is expected to decrease to roughly 3.9% by the end of 2025, down 80 bps from the current level of 4.7%.
• Employment picture is unchanged, to date, despite numerous headlines.
  February employment increased 1.4% while unemployment ticked up to 4.1%. The impact of federal layoffs may not be fully reflected in the data, as government employment increased 1.7% during the month. Incremental layoffs could be a headwind to economic growth and summer travel.
• Lower rates and narrower spread cause hotel CMBS rates to decline to 7.0%.
  February credit spreads contracted 40bps y/y to 1.6 percentage points (p.p.). While CMBS loan issuance nearly doubled from $0.5 billion in February 2024 to $0.9 billion in February 2025, average loan size only increased from $25.2 million to $27.9 million. The average loan count increased from 21 to 31 year-over-year.

Current Trends

• February RevPAR grew 1.9% supported by growth in most markets.
  ADR growth of 1.4% lagged inflation. Occupancy growth continued to moderate but was 0.5%, resulting in RevPAR growth of 1.9%. RevPAR growth for all chain scales was positive in February but the pace of increases slowed in most chain scales. Higher priced chains outperformed during the month.
• Short-term rental demand grew 4.6% in February outpacing hotel demand.
  STRs continued to take share from hotels, with STR demand growing 4.6% compared with a 1.5% increase in hotel demand. STR share of demand increased again in February to 13.3% compared with 11.7% in 2019. STR RevPAR increased 5.2% in February as ADR rose to 140% of 2019 and occupancy remained steady at 99% of 2019.
• On a TTM basis, expense growth continues to outpace total revenue growth.
  Healthy top line growth of 4.5% in January resulted in a 3.3% increase in GOP dollars. Expense growth has started to moderate, however, on a TTM basis, margins still contracted 0.2 p.p. We expect margins to continue to be under pressure going forward as costs continue to increase albeit at a lower rate.

Food for Thought

• Negative sentiment could offset positive wage gains and discretionary income.
  Wage growth continued to outpace inflation by 122 bps in February, indicating consumers might have the money to travel. However, declines in the S&P, which is down 4.4% YTD, and flagging consumer confidence, which fell to 93 from 105 in March, could be a headwind to hotel demand going forward.
• Adjusting for leap year, February inbound international travel rose 1.0%.
  Outbound international travel increased to 5.6%, to 125% of 2019’s level in February while inbound lagged at 84%. Given the current political climate, it is unlikely that inbound travel will recover to pre-pandemic levels in 2025 creating a headwind to hotel demand.
• TSA throughput declined in March down 0.2%.
  TSA throughput was essentially flat in March. Google searches for travel have fallen off so far this year, with corporate and redemption travel searches falling 3.7% and 7.0%, respectively, in March. This could be an indicator of slowing demand for travel in 2025.

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