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

Key Takeaways:

Economy

After 1Q25’s forecast release, CBRE cut its 2025 GDP outlook to 1.3% from 1.9%.
In June, CBRE reduced its 2025 and 2026 GDP growth estimate to 1.3% and 2.0%, respectively, below the long-run average of 2.1%. Inflation is now expected to increase in 2026 to 3.6% up from 2.7% previously, which could put sustained pressure on profits and margins.

Employment continued to grow in May, even as unemployment rose slightly.
May employment increased 1.3% while unemployment ticked up to 4.2%. Recent employment, discretionary income, and wage gains, which are outpacing inflation by 147 bps, have not resulted in stronger RevPAR growth.

Both CMBS loans’ size and volumes dropped materially in May.
May credit spreads contracted by 50 basis points y/y. CMBS loan issuance has fallen substantially from $2.6 billion in May 2024 to $0.9 billion in May 2025, with average loan size decreasing from $55.0 million to $13.1 million. Though the average borrowing is smaller, the average loan issuance count rose from 48 to 67 y/y.

Current Trends

May RevPAR was flat (+0.1%) as ADR gains were offset by lower occupancy.
ADR growth of 0.8% was offset by a 0.7% drop in occupancy, resulting in relatively flat RevPAR y/y. RevPAR growth for some chain scales softened in May. Luxury chains outperformed during the month, with a 3.4% RevPAR increase while economy chains continued to struggle with a 1.9% RevPAR decline.

Short-term rentals continued to capture market share from hotels in May.
STRs demand increased 6.0%, well above the 0.3% contraction in traditional hotel demand. STR share of total demand increased again in May to 13.9% compared with 13.2% in 2024. STR RevPAR increased 5.7% in May as ADR rose to 144% of 2019 and occupancy dropped slightly y/y to 99% of 2019.

Total revenue, which is reported on a lag, grew 0.4% in April due to the Easter shift.
Weaker top line growth impacted by the shift in Easter led to a 2.4% decrease in profit dollars. While expense growth, particularly insurance costs, have started to moderate on a TTM basis, margins still contracted 0.1 p.p.. We expect margins to continue to be under pressure as muted revenue growth and higher inflation impact bottom line results.

Food for Thought

Market sentiment held steady despite expectations of an economic slowdown.
Despite an uncertain economic outlook, business sentiment in May remained the same at 98.9 versus 99.0 last year. The S&P has recouped losses from earlier in the year, up 5.6% YTD, and earnings expectations could be a positive sign for travel demand.

Inbound-outbound travel gap widened in May despite a weak dollar.
Outbound international travel increased 3.4%, to 124% of 2019’s level while inbound international travel declined 2.8% y/y falling to 84% of 2019. Given the current political and economic climate, it is likely that the imbalance between inbound and outbound travel will persist through at least 2026 creating a headwind to hotel demand.

TSA throughput declined again in June by 1.0%.
Despite lower airfares and stable discretionary income, travel trends appear to be softening with declining throughput and minimal RevPAR growth. On a bright note, Google searches for corporate and redemption travel picked up in June, increasing 5.2% and 2.8% y/y, respectively. This could be a tailwind for travel in the second half of 2025.