Headwinds Persist in 2024

The U.S. hotel industry will face many headwinds to RevPAR growth in 2024, including competition from alternative lodging sources (short-term rentals, glamping, cruise lines, casinos, etc.), an economic slowdown, less consumer spending and military conflicts in Europe and the Middle East. On the other hand, the industry could potentially benefit from roughly 4.7 million more overseas visitors if international travel returns to 2019 levels. This influx could eventually boost the overall occupancy rate by 1.2% to a record level.

Given the prevailing headwinds, CBRE expects RevPAR growth of just 3.0% in 2024, supported by a 40-basis-point increase in occupancy and a 2.3% increase in ADR. Urban hotels are expected to outperform in 2024, while airport hotels will benefit from the increase in inbound international travelers. Resort properties, which were a bright spot during the pandemic and benefited from outbound international travel constraints, are expected to see the slowest growth.

Figure 17: 2024 RevPAR Growth by Location Type

Source: Kalibri Labs, CBRE Hotels Research, Q3 2023.

Upper-Midscale Chain Hotels Will Fare Better

On average during economic downturns, RevPAR falls less and recovers more quickly in the upper-midscale chain scale than in other chain scales as guests trade down. We expect this will be the case in 2024 as the U.S. experiences an economic slowdown.

With a forecast of 3.0% overall RevPAR growth in 2024, we expect that margins, profits and cash flows will fall due to wage inflation, higher food & beverage and non-operating costs, increased renovation costs and high interest rates.

Investment Activity Will Remain Muted

Hotel cap rates averaged 8.0% in Q3 2023, while the average hotel CMBS loan carried an 8.4% interest rate. This spread between hotel cap rates and borrowing costs is narrower than other real estate classes, making hotel assets relatively attractive. Nonetheless, heightened risks to RevPAR growth, an expected decline in profits, deferred capex and higher cost of capital will result in less hotel investment activity. We expect trophy assets, newer select-service assets in markets with modest supply growth and hotels focused on group travel in markets with a solid mix of business and leisure demand will be the most attractive for investors.

Figure 18: 2024 Hotels Outlook

Source: CBRE Hotels Research, Q3 2023.
*Based on 2Q23 Investment Performance.

Markets to Watch

  • Los Angeles: The local hotel industry should see a boost from more Asian visitors and an end to the strike by entertainment workers.
  • San Diego: Group travel to the city is expected to improve due to resurgent convention business and the 17% increase in government per diems in 2024.
  • Boston: Hotels should benefit from strong university demand, special events and more group and business travel.
  • New York: More in-bound international travelers and greater restrictions on short-term rentals should benefit the hotel market.
  • Washington, D.C.: The city should experience more group travel, as well as an increase in overseas visitors.

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