NATIONAL
REPORT — Lodging Analytics Research & Consulting (LARC) is projecting
U.S. RevPAR will increase by 1.3% in 2025, which is a marked decline from its
initial projection of a 3.1% increase for the year a few months ago, according
to its June 2025 U.S. Lodging Industry and Market Outlook provided exclusively
to Hotel Investment Today before its release on Monday.
Ryan Meliker, president and co-founder of LARC, added that they have also issued an upside and downside scenario for its U.S. hotel forecasts. In the upside scenario, RevPAR would increase by 3.7% in 2025 and 9.5% in 2026 before turning negative in 2027. ADR would almost exclusively drive that growth. In the downside scenario, RevPAR would decrease by 1.9% in 2025 and 0.3% in 2026 before increasing by 2.1% in 2027. In that scenario, occupancy would be 120 basis points lower than 2024 levels. LARC notes that RevPAR would still grow meaningfully in the downside scenario.
With the economic uncertainty, LARC also expects U.S. hotel cap rates to rise almost 40 basis points through 2029 on average, which is projected to increase by widening spread offset by expectations for the Fed to start cutting rates.
Numbers behind reforecast
In March,
LARC projected a RevPAR increase of 3.1% ($103.2), which was one of the
more bullish for the U.S. hotel industry at the time. Now the LARC is
projecting a lower increase of 1.3% ($101.56) driven by ADR growth of 2.1%
($162.36) with an occupancy decline of 0.8% to 62.5%. LARC is also projecting
hotel EBITDA to decrease by 2.3% with over 100 bps margin erosion (it projected
an increase of 1.8% in March) and projects hotel values to increase by 5% over
the next five years (it projected an 8% increase over the same period a few
months ago).
“Our 2025
operating outlook has moderated considerably tied to a substantially reduced
economic outlook,” the report said. “Additionally, current federal government
policies are likely to cause a decline in government demand and international
inbound arrivals, which will further weigh on hotel performance in 2025.
Declining top-line performance negatively affects LARC’s hotel EBITDA outlook,
which in turn results in our reduction of hotel values.”
Over the medium-to-long term, we expect markets with outsized exposure to leisure transient and group to outperform. However, in the immediate term, those with strong convention calendars are likely to yield the most growth.
Ryan Meliker
According Meliker, the U.S. economy and the hotel
industry are facing near-term challenges on three fronts, all tied to the
current presidential administration’s policies: over the past three months, the
U.S. economic outlook has “degraded meaningfully and recently transitioned into
a period of heightened uncertainty” driven by tariffs and the lack of
transparency of their ultimate scale and duration; a reduction in federal
government staffing and spending that is limiting economic growth; and
government-related travel and rhetoric from the Trump administration which is
causing a pullback in inbound foreign arrivals to the U.S.
The LARC
letter also said recent volatility and an “enhanced sense of uncertainty has
dramatically clouded any near-term outlook, resulting in the U.S. consumer
growing increasingly wary of rising inflation.” As a result, LARC stated depressed consumer
sentiment is likely to weigh on the summer leisure travel season, which may be
exacerbated by a reduction in inbound foreign arrivals. These shifts follow
what many perceived as the potential for reacceleration in hotel fundamentals
in 2025, especially related to leisure demand.
The report
also cites other uncertainty factors, including real GDP declining by 0.3% in
the first quarter of 2025, RevPAR growth remaining positive at 2.2% but
decelerating throughout the quarter and a 45% probability of recession in
the next 12 months, the highest since October 2023.
Looking ahead
Over the medium-to-long term, LARC expects markets with outsized exposure to leisure transient and group to outperform. “However, in the immediate term, those with strong convention calendars are likely to yield the most growth,” Meliker said.
Here are the
LARC’s top markets for RevPAR growth in 2025 and over the next five years.
Top
markets for 2025 RevPAR growth: Palm Beach, Florida; San Francisco; Palm Springs,
California; Orlando and New Orleans
Bottom
markets for 2025 RevPAR growth: Memphis, Cincinnati, Cleveland, Houston and Portland
5-YEAR
OUTLOOK (2024-2029)
Top
markets for RevPAR growth: Palm Beach; Maui; Raleigh, North Carolina; Orlando and Puerto Rico
Bottom
markets for RevPAR growth: Houston, Cincinnati, Austin, Louisville and Pittsburgh
Top
markets for value change: New Orleans, Orlando, Puerto Rico, Charlotte and Tampa
Bottom
markets for value change: Austin, New York, Boston, Chicago and St. Louis