NATIONAL REPORT -- CBRE published its U.S. Hotels State of
the Union March 2025 edition and remained mostly optimistic despite the economic
current chop and political climate in today’s marketplace.
In 2025, CBRE expects a 1.6% increase in ADR and a 0.3%
increase in occupancy to result in a 2.0% growth in RevPAR. Urban locations are
expected to outperform other location types driven by improved international
inbound travel and increases in business transient and group travel.
Looking at the broader economic picture, CBRE is forecasting
2.4% 2025 GDP growth above the 2.1% long run.
Inflation is expected to decrease in 2025, dropping to 2.5%
down from 2.9% in 2024. The Fed Funds Target Rate is expected to decrease to 80
bps by the end of 2025 to 3.9%. Employment is expected to pick up in 2025
increasing 0.6%.
In January, lodging delinquencies were 6.2% lower than the overall CRE delinquency rates, which stood at 6.6%. Special servicing rates rose 130 basis points year-over-year from 6.9% in January 2024 to 8.2% in January 2025.
Employment gains in January were the strongest since Q4 2023,
according to CBRE. It said in January, employment rose 1.7% and wages grew
4.1%, around 106 bps higher than inflation. However, the 7.1% and 4.5%
increases in airfares and RevPAR, respectively, could be a travel headwind.
Disposable income growth slowed to 1.8% in January.
CRE delinquency rates surpassed that of hotels for the first
time in January, according to CBRE. In January, lodging delinquencies were 6.2%
lower than the overall CRE delinquency rates, which stood at 6.6%. Special
servicing rates rose 130 basis points year-over-year from 6.9% in January 2024
to 8.2% in January 2025.
Looking closer at current lodging trends, CBRE reported that
January RevPAR increased 4.5% driven by increases in rate and occupancy.
A 3.4% increase in ADR coupled with a 1.0% increase in
occupancy led to another month of strong RevPAR growth in January. Sporting
events, natural disasters and the inauguration helped to buoy rates and
occupancy in January particularly for luxury hotels which experienced a 12%
increase in RevPAR.
CBRE said alternative lodging sources continue to take share
from traditional hotels with short-term rental demand share reaching 13.5% in
January 2025 compared with 11.3% at the beginning of 2020. Similarly to hotels,
short-term rentals experienced strong rate growth and occupancy expansion in
January with RevPAR increasing 8.1%.
Profit dollars increased 11.8% in December far outpacing the
full year trend of -0.2% with strong RevPAR growth in December resulting in the
highest total operating revenues increase since March 2023, up 6.4%.
Despite mid-single digit revenue growth supporting margin
expansion in December, expense growth outpaced total revenue growth in 2024
resulting in a 0.4 pp. contraction in TTM profit margins resulting in declining
profits in 2024.
Offering food for thought, CBRE noted that the international
travel imbalance is unlikely to normalize in 2025. Outbound international
travel rose 8.5% y/y outpacing the 5.4% y/y growth in inbound visitation,
making normalization of the international travel imbalance unlikely in 2025. The
growth rate of inbound visitation to both East and West coast markets has
slowed materially since last year. Travel from Japan and China is slowly
recovering.
In addition, TSA throughput was up slightly 1.0% in
February, excluding the Leap Year. February passenger throughput was 107% of
2019 levels a decline from a year ago when throughput stood at 110% of 2019
levels owing to Leap Year.
Although wage growth continues to outpace inflation, CBRE
said rising airfares could be a headwind to travel in the 2025.