Lodging
U.S. MACRO OUTLOOK UPDATE
After averaging 3.9% annual growth leading into the pandemic, spending on accommodations dropped severely during the pandemic and recovered at the end of 2023. We expect demand to soften to 1.1% during 2024 before returning to trend in 2025 and 2026.
Similarly, we expect hospitality employment to remain flat for 2024 and revert to trend over the next two years.
Consumer spending continues to favor services including travel and leisure; real PCE growth on sporting events, museums and theaters has outpaced overall PCE each quarter since mid-2021.
Given pressures on discretionary spending, we expect travelers will generally opt for more affordable tiers of lodging, benefitting occupancy and revenue growth in economy and midscale product. Luxury hotels will continue to have a slower recovery.
Despite challenges to consumer discretionary income, the post-pandemic recovery of the lodging sector continues to remain resilient. The TSA has reported that checkpoint volumes at end-of-year (EOY) 2023 exceeded 2019 levels by 1.6%.
Due to the hybrid work paradigm, business travel has dipped noticeably, resulting in reduced lodging activity during weekdays in many business-oriented hotels. To better meet the growing concentration of the market on luxury travel, hospitality operators are planning changes in marketing and design strategies, including reevaluating amenity offerings and selecting sites in travel-destination markets.
Performance across specific markets has varied greatly. Sunbelt markets have performed strongly while some coastal markets have been slower to recover. Overall, RevPAR growth has been stagnant, as room rates have increased but occupancy is no longer rising and operating costs have grown.
Going forward, we can expect performance to remain steady in this ‘new normal,’ with a delivery pipeline over the next several years limited largely to luxury assets in Sunbelt markets. As conditions improve in downtown core markets in other asset categories during the longer term, expect hotel assets in these submarkets to directly draft off this recovery.
