As featured in RREAF Holdings 2024 Annual Newsletter:
The 2024-2025 U.S. Hotel Forecast from STR and Tourism Economics reveals a positive growth trajectory for the hospitality industry, with steady year-over-year improvements. While the sector has not yet returned to the peak levels seen in 2019, the outlook for 2025 is promising. STR projects a 0.1 percentage point increase in occupancy, with ADR expected to grow by 1.6% and RevPAR by 1.8%. Yet, despite these favorable trends, STR President Amanda Hite has identified two concerns heading into 2025: a decline in lower-income travelers and an increase in outbound travel. Due to the increased cost of living, fewer lower-income travelers participate, decreasing demand for the lower-price point assets, and a stronger dollar will likely drive more U.S. travelers abroad, especially to Europe and Asia-Pacific.
Despite these challenges, the hospitality sector continues to show resilience. The recent September, November, and December federal funds rate cuts, with expectations for additional cuts next year, have boosted investor confidence. As of September 2024, hotels under construction have increased, with under construction projects up 7%, final planning stage up 10.4%, and in planning stage up 38.4% year-over-year, largely driven by Upscale and Upper Midscale segments, which comprise over half of all new rooms. Although new supply is expected to gradually increase, the labor market remains strong. This stability supports steady demand from both domestic and foreign travelers. In 2025, economy and midscale hotel segments remain cautiously optimistic amid a mixed economic environment. Following a slight downgrade in ADR growth for 2024, projections for 2025 show stability with a +2.0% year-over-year increase expected for ADR and a +2.6% increase for RevPAR. Occupancy growth has been modestly upgraded by 0.2 percentage points, signaling a gradual recovery in demand.
Artificial Intelligence has been a game-changer for the hotel industry, with the potential to streamline operations and significantly increase Gross Operating Profits. AI tools can collect better insights on guests, optimize operations, and scale business efficiencies by cutting unnecessary costs. Future innovations include virtual reality previews, allowing guests to experience accommodations before booking, and predictive room service, where AI models can anticipate guest room service preferences and schedule based on past behavior. While AI promises operational efficiency and an enhanced guest experience, hospitality operators must strike a balance to preserve the essential human connection that remains irreplaceable.
Looking ahead, slower overall growth is anticipated, yet strong household finances and an uptick in business investment point to potential for moderate travel growth. The industry expects gains in international inbound, business, and group travel to bolster demand. Additionally, operational profitability is forecasted to improve as labor costs moderate, with upper-midscale chains maintaining a cost advantage over luxury segments. These dynamics should help support modest growth for economy and midscale hotels in 2025.
Sources:
“Global Hotel Investment Outlook 2024.” JLL Research, 23 Jan. 2024, www.us.jll.com/en/trends-and-insights/research/global-hotel-investment-outlook-2024.
Resorts, IHG Hotels &. “IHG Hotels & Resorts Revolutionizes Booking Experience through Next-Gen Cloud Solutions.” PR Newswire: Press Release Distribution, Targeting, Monitoring and Marketing, 12 Sept. 2023, www.prnewswire.com/news-releases/ihg-hotels–resorts-revolutionizes-booking-experience-through-next-gen-cloud-solutions-301924628.html.
Sahota, Neil. “Ai in Hospitality: Elevating the Hotel Guest Experience Through Innovation.” Forbes, Forbes Magazine, 2 July 2024, www.forbes.com/sites/neilsahota/2024/03/06/ai-in-hospitality-elevating-the-hotel-guest-experience-through-innovation/.
“Str, Te Maintain 2024-25 U.S. Hotel Forecast.” STR, 8 Aug. 2024, str.com/press-release/str-te-maintain-2024-25-us-hotel-forecast
Tufft, Caroline, et al. “Six Trends Shaping New Business Models in Tourism and Hospitality.” McKinsey & Company, McKinsey & Company, 29 May 2024, www.mckinsey.com/industries/travel-logistics-and-infrastructure/our-insights/six-trends-shaping-new-business-models-in-tourism-and-hospitality.
“U.S. 2024 and 2025 Mid-Year Outlook Report.” Airdna.Co, www.airdna.co/blog/us-mid-year-outlook-2024-2025. Accessed 29 Oct. 2024.
“U.S. Hotel Construction Increased for Seventh Consecutive Month.” STR, 23 Oct. 2024, str.com/press-release/us-hotel-construction-increased-seventh-consecutive-month.
Staff, LODGING. “Str, Te Slightly Adjust 2024-2025 U.S. Hotel Forecast-Lodging.” LODGING Magazine, 8 Aug. 2024, lodgingmagazine.com/str-te-slightly-adjust-2024-2025-u-s-hotel-forecast/
Disclaimer: The contents of this blog are not investment advice and should not be construed as such. Statements herein do not specifically describe any RREAF investment deal in particular. Information about specific RREAF investment opportunities are only contained in the applicable published “Private Placement Memorandum” issuing a given opportunity. Statements on performance may be qualified. Past performance does not predict future success.
