STR and Tourism Economics have made significant adjustments to the 2024-25 U.S. hotel forecast as increased cost of living, high interest rates and slowing wage growth have led lower- and middle-income Americans to book fewer hotel stays.
Overall U.S. hotel room demand fell 0.5 percent in April. However, demand for mid-scale properties fell about 2.7 percent while economy hotel demand slipped 3.9 percent for the month.
"The increased cost of living is affecting lower-to-middle income households and their ability to travel, thus lessening demand for hotels in the lower price tier," STR President Amanda Hite said in a statement.
"The upscale through luxury tier is seeing healthy demand, but pricing power has waned given changes in mix and travel patterns and to a lesser extent, economic conditions. Travel remains a priority for most Americans, but the volume has lessened as prices on goods and services continue to rise."
Experts now anticipate average daily room rates (ADR) will rise 2.1 percent this year compared to the previous forecast of 3.1 percent. Meanwhile, revenue per available room (RevPAR) is expected to rise 2 percent in 2024, down from the previous forecast of 4.1 percent following a 5 percent increase in 2023.
Occupancy levels are now projected to fall slightly to 62.8 percent from 63 percent in 2023 while supply is expected to grow 0.8 percent this year, up from 0.3 percent growth in 2023.
"Still-elevated interest rates and easing wage growth have contributed to cautious business investment and pinched spending by many middle- and lower-income consumers," said Aran Ryan, director of industry studies at Tourism Economics, "Looking beyond this near-term pull-back in demand at lower-tier properties, we expect moderate travel growth to resume, supported by a tempered economic expansion and the continued rebound of group, business, and international travel."
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