US Hospitality Directions: November 2024

Post-election clarity and ADR increases likely to sustain hotel performance through 2025 amid modest demand growth

The US lodging sector is expected to experience muted growth in 2025, driven by moderate increase in average daily room rates and stable occupancy levels, resulting in an annual increase in revenue per available room of 1.5%. Despite stagnant supply levels over the past few quarters, new construction projects are expected to be spurred in 2025 by a combination of factors, including increasing optimism about a soft landing, easing monetary policies, and other capital markets tailwinds. However, overall impacts from the macroeconomic environment are expected to continue to suppress demand and occupancy growth in 2025.

Since our May 2024 outlook, the Federal Reserve has cut rates twice, beginning in September with a 50-basis point cut and most recently in November with a 25-basis point cut. The Fed’s recent actions, along with moderating inflation levels of 2.8% and 2.2% quarterly increases in Q2 2024 and Q3 2024, respectively, per S&P Global, have fostered cautious optimism of a stabilizing economy and indicate potential easing of a constricted financing environment. Favorable shifts in the overall financing landscape are expected to drive increasing construction starts throughout 2025.

• Demand growth in 2025 is expected to be muted, primarily due to decelerating consumer spending and GDP growth, which is projected to increase by an annual average of 2.7% and 2.1% in 2024 and 2025, respectively. Despite the continuing growth in business travel, particularly meetings and group business, and the potential resurgence of inbound international travelers to pre-COVID levels, economic challenges are expected to continue to impact leisure travel. This outlook may shift as the current landscape of political and economic uncertainty becomes clearer in the coming months after the recent election, including the potential impact of immigration policies, evolving travel patterns and restrictions, as well as tariffs, among others.
• Expected growth in ADR in 2025 offers a redeeming trend in light of muted supply and demand growth, driven by the continued strength of higher-priced chain scales. Performance gains from ADR are expected to average 1.5% and 1.3% in annual growth for 2024 and 2025, respectively, resulting in an ADR-driven annual increase in RevPAR of 1.3% and 1.5%, respectively. Significant risks to this outlook include the pace of changes in the macroeconomic environment, the pace of rate cuts and evolution of monetary policy, and the impact of policy implementation after the recent election.

RevPAR percent change, US and chain scales

^{Source: PwC, based on data from STR}