U.S. Hotel Performance Impacted by Moderate Summer Demand; Growth Forecast to Improve in Q4

Despite facing challenges from subdued summer demand and a sluggish third quarter, U.S. hotel performance is expected to reaccelerate in the fourth quarter and extend into 2025, according to CBRE’s latest forecast.

CBRE now forecasts a 0.5% increase in revenue per available room (RevPAR) growth for 2024, down from the previously estimated 1.2% in August. This revision reflects a 40 basis point (bps) decrease in expected occupancy compared to the prior forecast, with occupancy anticipated to decline by 30 bps year-over-year. The average daily rate (ADR) is expected to increase by 0.7%, a reduction of 40 bps from earlier projections. RevPAR growth is expected to reaccelerate beginning in Q4 2024, supported by recent interest rate cuts, easing inflation, and rising stock market trends.

“U.S. hotels performance was softer-than-expected during the summer months, partly due to Americans traveling overseas in record numbers. At the same time, the slow recovery in inbound international travel has created an imbalance in U.S. leisure demand,” said Rachael Rothman, Head of Hotel Research & Data Analytics for CBRE. “Despite this, continued improvements in group and business travel served as relative bright spots in the third quarter.”

In Q3 2024, hotel demand declined 0.1% year-over-year, coupled with a 0.6% increase in supply, resulting in an approximately 0.8% decline in occupancy. Modest ADR growth of 0.6% fell short of CBRE's previous expectation of 1.6%, leading to a 0.2% decrease in RevPAR for the quarter.

“The breakdown in the historical correlation between hotel demand and GDP growth continued into the third quarter, but we expect a normalization of this relationship due to interest rate cuts, lower CPI growth, and improving GDP indicators,” said Michael Nhu, Head of Global Hotels Forecasting for CBRE. “These trends are forecasted to strengthen the fundamentals of the U.S. hotel market, leading to reaccelerated RevPAR growth heading into 2025.”

CBRE forecasts a compound annual growth in supply of 1% over the next five years, below the industry’s long-term historical average of 1.6%. The forecast includes GDP growth of 2.6% and average inflation of 2.9% for 2024. The lodging industry’s performance is closely linked to economic strength, as there is typically a strong correlation between GDP growth and RevPAR. Given current macroeconomic and geopolitical uncertainties, CBRE advises clients to evaluate and incorporate various economic and hotel performance scenarios in their models based on their risk tolerance and probability weightings.

The November 2024 edition of Hotel Horizons for the U.S. lodging industry, 65 major markets, the six hotel chain scales and six location types can be purchased by visiting: https://pip.cbrehotels.com/hotelhorizons. CBRE’s baseline forecasts do not contemplate an international war or a pervasive recession. CBRE also produces forecasts based on upside and downside scenarios.