Dive Brief:
- STR and Tourism Economics made “significant downward adjustments” to their 2024-25 U.S. hotel forecast to reflect lower-than-expected hotel performance thus far in 2024, the companies announced with a news release at the NYU International Hospitality Industry Investment Conference in New York City.
- The firms downgraded projected gains in ADR and RevPAR by 1 percentage point and 2.1 percentage points, respectively, and now predict occupancy for the year will decline year over year.
- In a statement, STR President Amanda Hite said higher cost of living is impacting lower-to-middle-income households’ ability to travel, “thus lessening demand for hotels in the lower price tier.” Meanwhile, upscale through luxury tiers are seeing “healthy” demand, she said.
Dive Insight:
A previous STR and Tourism Economics forecast predicted that occupancy would increase this year. For the previous forecast, the firms kept their 2025 occupancy growth projection the same, but made downward adjustments to their ADR and RevPAR expectations for next year, down .8 and .9 percentage points, respectively.
STR now predicts that U.S. RevPAR will grow 2% in 2024, and 2.6% year over year in 2025, compared to its previous forecast which projected 4.1% growth this year and 3.5% in 2025. ADR, meanwhile, is expected to grow 2.1% this year and 2% the next, according to the forecast (down from projected growth rates of 3.1% in 2024 and 2.8% in 2025).
“We have seen a bifurcation in hotel performance over the first four months of the year, which we don’t believe will abate soon,” said Hite. And while upscale through luxury hotels continue to see healthy demand, she added, “pricing power has waned given changes in mix and travel patterns and to a lesser extent, economic conditions.”
Tourism Economics Director of Industry Studies Aran Ryan said middle- and lower-income consumers’ spending has been impacted by elevated interest rates and easing wage growth.
"Looking beyond this near-term pull-back in demand at lower-tier properties, we expect moderate travel growth to resume, supported by a tempered economic expansion and the continued rebound of group, business, and international travel,” Ryan added.
Meanwhile, higher operating expenses have led STR and Tourism Economics to forecast lower gross operating profit margins, Hite said, with labor costs in particular making an impact.
STR and Tourism Economics anticipate that labor costs will be roughly one-third of total revenues through the rest of this year, with upper midscale chains maintaining the lowest labor costs and therefore strongest GOP margins, “which follows pre-pandemic trends,” Hite said.
Last month, Caesars Entertainment cited union-won wage increases — and the attendant increase in operating costs — as a factor contributing to its “butt-kicking” first quarter. Earlier this year, the American Hotel & Lodging Association projected that hotels will pay employees $123 billion in wages, salaries and other compensation in 2024, up 4% year over year.
Last month, CBRE projected that U.S. hotel RevPAR will grow 3% for the remainder of 2024.
