Demand for US Hotels Drops, Forecast Adjusted

The demand for hotels in the United States has seen a significant drop, prompting forecast adjustments from industry experts. The decline in demand is attributed to a “bifurcation” in hotel performance, with lower-priced hotels experiencing a decrease in bookings due to the rising cost of living impacting lower-to-middle income households’ ability to travel.

Forecast Adjustments: STR and Tourism Economics have downgraded their U.S. hotel forecasts for 2024 and 2025. The average daily rate (ADR) gains projection for 2024 has been revised from 3.1% to 2.1%, while RevPAR projections dropped from 4.1% to 2.1%. Occupancy is expected to decline by 0.2% to 62.8% for the entire year.

Lower-Tier Hotels: The decline in demand is particularly pronounced in lower-tier hotels, which are struggling due to the economic pressures and reduced spending by middle and lower-income consumers.

Upscale Segment: Travel demand remains strong in the upscale through luxury tier, but pricing power has weakened due to changes in mix and travel patterns, as well as economic conditions.

Elevated interest rates and stagnating wage growth have contributed to cautious business investment and reduced spending by middle and lower-income consumers. Despite the current challenges, industry experts expect moderate travel growth to resume, supported by a moderating economic expansion and the continued rebound of group, business, and international travel.

Impact on Hotels and Investors
The forecast adjustments have significant implications for hotels and investors. Hotels are adjusting their strategies to cope with the decline in demand, including managing labor costs and optimizing pricing. Investors are also reassessing their investments in the hotel sector, considering the potential long-term impact of these economic factors on the industry.

Summary
The decline in demand for US hotels is a significant challenge for the industry, particularly for lower-tier hotels. However, industry experts remain optimistic about the long-term prospects for the sector, expecting moderate travel growth to resume as economic conditions improve.