Skift Take
There are financial pressures and segment-specific obstacles, such as growing supply in the luxury market.
Sean O’Neill
STR and Tourism Economics lowered their forecast for U.S. hotel demand development today. The benchmarking firms now predict a more modest 2.1% boost in typical everyday rates this year– below the previous price quote of 3.1%.
“Everyone in the hotel sector is saying we don’t have as much leisure [need] on weekends,” stated Amanda Hite, president of CoStar’s STR, during an interview at the NYU International Hospitality Industry Investment Conference.
While the market remains meticulously optimistic about the remainder of the year, the recovery of lower-tier hotels hinges on the return of leisure travel and possible rates of interest decreases.
CBRE, a real-estate consulting firm, also downgraded its projection today. It now anticipates comparable development in the typical hotel day-to-day rate of just 2.4% in 2024.
An increase in the 2.1% to 2.4% variety would be less than the 3.4% rise in inflation expected by 34 forecasters surveyed by the Federal Reserve Bank of Philadelphia.
Numerous CEOs of significant hotel groups spoke today at the NYU conference and didn’t dispute softening projections for leisure need. However, the CEOs emphasized how group reservations for events were up significantly year-over-year and that some markets, such as New York City, were growing highly.
“Throughout the CEO panel this afternoon, the messaging from the [hotel groups] appeared more long-lasting than short-term in orientation and the CNBC mediator called out (properly in our view) this shifting story,” wrote experts at Truist Securities in a report. By “shifting story,” the experts implied that the CEOs sought to tell a favorable story and did that by overlooking short-term uncertainty.
Lower- and Mid-Tier Obstacles
“The first months of the year broadly saw a moderation in demand across the hotel market,” Hite stated. “Some sections saw declines, and even in sections where demand grew, the growth was moderate.”
Lower-tier and mid-tier hotels saw more weak point than expected in the very first quarter.
“Middle-income to lower-income consumers are feeling pinched by inflation, and some are cutting travel out,” Hite said. “If inflation keeps boiling down, that will provide some relief, however I do not believe it’ll be enough until rates of interest begin to come down and make it less expensive for customers to fund their credit card debt and loans.”
High-end Section Threats
“The area for me that was unexpected was the down modification in the high-end sector,” Hite stated.
The luxury segment deals with greater dangers due to a noteworthy shift in the visitor blend away from leisure tourists toward more group reservations and company travelers. Travelers tend to spend more money on meals and services like medspa treatments than business tourists.
“Rates will be under pressure there,” Hite said, “especially if high-end hotels try to draw in more leisure travelers on weekends by cutting rates.”
Supply Pressures
Hotel performance in 2024 might be tempered by numerous brand-new hotels scheduled for conclusion this year. CBRE said the growing supply of short-term and vacation leasings and the return of reduced cruise liner itineraries might also cause competitors.
Uncertain Economic Instructions
The U.S. annualized economic growth rate has fallen from 4.8% to 3.4% to 1.3% over the previous 3 quarters.
Case for Optimism
Decreases in rates of interest might help relieve a few of the monetary pressure on customers, potentially boosting need for lower-tier hotels.
If the Federal Reserve cuts rates of interest, there is optimism that hotel demand will improve in the remaining months of the year, with less severe declines thanks to a normally better economic environment.
A side note: National political conventions are anticipated to increase need in host cities. For instance, the Republican National Convention in Milwaukee is anticipated to cause 50,000 visitors for a week in July. Plus, in the fall, campaigning will reasonably depress need in Washington, D.C.
Nevertheless, elections have not substantially affected hotel demand outside these events in current history, Hite said.
Lodgings Sector Stock Index Efficiency Year-to-Date
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