U.S. economic growth improved during 3Q-2024 with Real GDP growth of 2.8%, slightly below the 3.0% increase in 2Q-2024. Despite strong economic growth, U.S. RevPAR only increased 0.9%, a deceleration from the 2.4% RevPAR change in 2Q-2024.
While economic growth has been strong in recent quarters, job growth has been more volatile. In October, U.S. Totalnonfarm jobs increased by just 12,000 jobs, while the same metric for September was 233,000 and 78,000 in August. Despite that volatility, continued economic growth is the general consensus. As of October, only 26% of economists surveyed by the Wall Street Journal expect a recession within twelve months (the lowest level since January 2022).
Additionally, any softness tied to the U.S. consumer appears to be abating. October Retail sales levels surprised to the upside and September growth was restated higher. The Visa Spending Index and Discretionary Spending Index have both been improving and are well off their July lows, a potential positive inflection point for domestic leisure travel. Meanwhile headline inflation continues to moderate, with September’s reading of 2.2% and October’s of just 2.4%; both metrics only slightly above the Fed’s target of 2.0%. The combination of a choppy labor market and moderating inflation has driven the Fed to begin to cut interest rates. Declining interest rates are likely to stimulate economic growth, a positive for the lodging industry.
Additionally, with the U.S. elections now decided, consumers and corporations can both move forward with certainty, which should stimulate some short-term economic activity driven by clarity, if nothing else. The promise of a new administration and a unified government that streamlines operations and lowers taxes could be a shortterm tailwind for the economy, while tariffs, risks of reaccelerating inflation, and a ballooning national deficit could limit growth and cause interest rates to rise.
As we look to 2025, we are increasingly confident that leisure demand growth will resume, fueled by a bottoming of negative pressure on the U.S. consumer, soft comparisons, and growing inbound foreign arrivals (aided by a moderating U.S. Dollar). Corporate transient demand is expected to remain solid in the near term as pent-up demand from the election cycle is unlocked in the first half of the year. However, our positive short-term outlook for corporate transient demand growth moderates as the year progresses, limited by sluggish job growth, corporate profit declines, and limited office utilization improvement. Group trends remain solid, contributing to a base level of demand that will further support pricing power. Nationally, we estimate that the convention center booking pace is up 5% on a year-over-year basis in 2025, following the 4% increase in 2024.
Additionally, an outsized portion of U.S. citizens are electing to travel abroad. In 2023, outbound international travel was 11% above 2019 levels. Importantly, that number has only strengthened since the start of 2024. Through September, year-to-date U.S. citizen outbound international travel was up 9% year-over-year and 20% above 2019 levels. While this phenomenon creates soft comparisons moving forward, momentum for outbound international travel remains strong.
Despite challenges related to U.S. citizens traveling abroad, there is ample opportunity for growth in foreigners travelling to the U.S. In fact, in 2023, foreign inbound visitation to the U.S. was still 16% below 2019 levels. Additionally, momentum is encouraging, as that metric has gradually narrowed and by September 2024, year-to-date inbound visitation was just 9% below 2019 levels and up 11% year-over-year. As foreign travelers tend to stay longer and spend more than domestic travelers, the continued recovery of this portion of the leisure segment will have an outsized impact on hotel performance. In fact, according to the U.S. Travel Association, overseas visitors (which accounted for 47% of total international visitors in 2023) had an average length of stay in the U.S. of 18 nights, far exceeding domestic traveler length of stay, estimated at around 2 nights.
International Travel Growth Rates vs. 2019 Levels
It is important to note that not every gateway-oriented market will benefit from a foreign inbound travel recovery. Every market has experienced a different level of recovery of foreign travel and interpretation of these nuanced details will be critical to comprehending which markets will benefit from tailwinds related to inbound foreign travel and those that will not.
Moody’s Analytics economic forecasts incorporate the following key national assumptions that drive our outlook:
- The Fed will cut the target Fed Funds Rate by 25 bps per quarter into 2026.
- U.S. GDP will increase 2.0% in the fourth quarter.
- U.S. GDP will increase 2.7% in 2024 and 2.2% in 2025.
As such, our current 2024 RevPAR outlook remains at 1.4% year-over-year growth, fueled by a 1.6% increase in ADR and a 0.3% decrease in occupancy. For 2025, we forecast RevPAR to increase 2.7%, driven by a 2.7% increase in ADR and unchanged occupancy. The acceleration in RevPAR growth is driven by tailwinds (or at least fewer headwinds) because of the U.S. election, improving group trends, fewer headwinds tied to domestic leisure demand, and strength from inbound foreign arrivals. Note that this is the fourth consecutive improvement to our 2025 RevPAR growth outlook as the macro-economic data that drives our RevPAR forecast has continued to improve for 2025.
However, should any of the above core macroeconomic assumptions meaningfully change, it could have a substantial impact on our U.S. lodging industry forecast.
We continue to expect there to be U.S. lodging markets that materially outperform as well as those that underperform national averages. Over the medium-tolong term, we expect markets with outsized exposure to leisure transient and group to outperform. However, in the immediate term, those with outsized exposure to inbound foreign travel and continued corporate transient recovery should shine most.
Furthermore, we anticipate financing costs to stabilize and transaction volumes to rebound. Expense pressures will become a substantial factor in identifying markets that are winners and those that are losers, especially with several major cities engaged in new collective bargaining negotiations. In Los Angeles, the hotel union reached an agreement with hotel owners/operators earlier this year that incorporates a wage increase of 40-50% over the next 4.5 years and a reset back to pre-pandemic staffing levels. Not only will this have an impact on the Los Angeles hotel market, but it is likely to be the barometer used across other collective bargaining agreements during the next several years, including Boston (agreement expired), Baltimore (agreement expired), San Francisco (agreement expired August 2024), San Jose (agreement expired August 2024), Seattle (agreement expired August 2024), New York (2026 renewal) and others. We expect nonunion hotels to keep pace with wage growth at union properties across these markets, though many are already paying wages above union-mandated levels.
Layering in added political risks like the Safe Hotels Act in New York City, which could be duplicated in other major markets, wage and expense growth is likely to be a bigger component of value change than top-line performance across many markets. As such, wage and expense growth and their strain on margin growth materially shapes our views on markets that are best and worst for investment today.
Transparency surrounding forecasting is critical to the lodging industry. We believe the best business decisions are based on the highest quality data and information available at the time of drawing such conclusion(s). We take that approach with our forecasts, using the best and most relevant available information to provide the most likely outcomes at the time of issuance.
LARC’s industry-leading market intelligence is available to help all industry participants navigate the current environment and position themselves for success. Please contact us to learn more about our services and products, or if there is any other way we may be able to serve you.
LARC’s Industry Outlook
Currently, for 2024, Lodging Analytics Research & Consulting (LARC) expects U.S. RevPAR to increase by 1.4% to $99.57, driven by ADR growth of 1.6% to $158.53 while occupancy declines 0.3% to 62.8%. For 2025, LARC expects U.S. RevPAR to increase by 2.7% to $102.29, driven by ADR growth of 2.7% to $162.85 while occupancy remains at 62.8%.
LARC forecasts 2024 U.S. Hotel EBITDA to decline 1.6%, with slight margin erosion, and Hotel Values to increase 5%. For 2025, LARC forecasts U.S. Hotel EBITDA to increase 1.1%, with slight margin erosion, and Hotel Values to increase 3%. Over the next five years, LARC expects Hotel Values to increase a total of 12%.
December 2024 U.S. Hotel Industry Forecast Summary
The below table illustrates a summary of LARC’s current U.S. Hotel Industry Outlook in contrast to last quarter’s outlook. Our 2025 outlook is minimally altered from a quarter ago. The most significant change is improving confidence in leisure demand having bottomed and growth to resume in 2025, which translates into higher occupancy levels but modestly lower ADR growth.
2025 U.S. Hotel Industry Forecast: December 2024 Edition vs. September 2024 Edition
LARC’s U.S. RevPAR model has an R-squared of 98.7% within a standard error of 2.7%, back-tested to 2000. LARC’s U.S. Cap Rate model has an R-squared of 98.5% within a standard error of 27 bps, back-tested to 2005.
Market Outlooks
Listed below are the best and worst performing markets based on our forecasts. Similar to LARC’s U.S. forecast, our market level forecasts are structured on multi-variable regression models with a high level of historical accuracy.
Additional details regarding our market outlooks can be found in LARC’s Market Intelligence Reports. Please contact us if you are interested in purchasing any of LARC’s offerings.
2024
Top Markets for RevPAR Growth:
Houston, Indianapolis, San Jose, Cleveland & Newport (RI)
Bottom Markets for RevPAR Growth:
Maui, Palm Springs, Memphis, Florida Keys & San Francisco
2025
Top Markets for RevPAR Growth:
Maui, San Jose, Seattle, Palm Beach & Fort Lauderdale
Bottom Markets for RevPAR Growth:
Kauai, Indianapolis, Ann Arbor, Houston & Milwaukee
5-Year Outlook (2023- 2028)
Top Markets for RevPAR Growth:
Maui, Raleigh, Palm Beach, New Orleans & San Jose
Bottom Markets for RevPAR Growth:
Cincinnati, Kansas City, Austin, Louisville & Savannah
Top Markets for Value Change:
Puerto Rico, Las Vegas, New Orleans, Seattle & Orlando
Bottom Markets for Value Change:
St. Louis, Boston, Chicago, Austin & San Diego
Ryan Meliker
President
Lodging Analytics Research & Consulting, Inc
