U.S. Hotel Market Outlook Dims: Budget Stays Hit Hardest

The U.S. hotel industry forecast for 2024-25 has been revised downward, reflecting decreased demand from lower- and middle-income consumers due to escalating living costs, higher interest rates, and stagnating wage growth. Industry analysts STR and Tourism Economics report a notable decline in hotel stays, particularly in budget and mid-scale segments.

Declining Demand Across Sectors In April, overall U.S. hotel room demand dipped by 0.5%, with more significant declines noted in specific market segments. Demand for mid-scale properties decreased by approximately 2.7%, while economy hotels saw a sharper drop of 3.9%.

Economic Pressures Curb Travel “The increased cost of living is particularly impacting lower-to-middle income households, diminishing their travel capabilities and thus reducing demand for lower-tier hotel accommodations,” stated Amanda Hite, President of STR. Despite this downturn, the luxury segments continue to see robust demand, though their pricing power is somewhat diminished due to changing travel patterns and broader economic factors.

Revised Financial Forecasts The revised forecast anticipates that average daily room rates (ADR) will rise by only 2.1% this year, a downgrade from the initially projected 3.1%. Revenue per available room (RevPAR) is expected to see a modest increase of 2% in 2024, a significant decrease from the previously forecasted 4.1% and following a 5% increase in 2023.

Occupancy rates are projected to slightly decline to 62.8% from 63% in 2023, while hotel supply growth is expected to slightly rise by 0.8% this year, up from 0.3% in the previous year.

Long-Term Outlook Aran Ryan, director of industry studies at Tourism Economics, commented on the broader economic implications: “Elevated interest rates and the slowdown in wage growth are prompting cautious business investments and reducing spending among many middle- and lower-income consumers.” However, experts anticipate that travel will eventually pick up again, supported by a modest economic expansion and the gradual recovery of group, business, and international travel sectors.