U.S. Hotels State of the Union May 2025 Edition

Key Takeaways:

Economy

• CBRE reduces 2025 GDP growth outlook to 1.4% from 2.4%.
  Following a 0.3% Q1 2025 GDP decline, CBRE cut its 2025 GDP outlook by 100bps and reduced its 2026 growth forecast to 1.7% from 2.4%. Inflation is expected to rise from 2.5% to 2.9% in 2025 and from 2.7% to 3.6% in 2026.
• Employment is expected to decline in 2025 and 2026.
  Despite negative headlines, March employment increased 1.3% while unemployment ticked up slightly to 4.2%. CBRE now expects employment declines in 2025 and 2026, reducing its forecasts from 0.6% and -0.06% to 0.7%and -0.14%, respectively.
• Spreads and rates pulled back in March with hotel CMBS rates falling to 6.5%.
  March credit spreads contracted 20 bps y/y to 1.7 percentage points (p.p.). While CMBS loan volumes nearly doubled to $1.3 billion in March 2025, average loan size decreased from $34.7 million to $16.0 million. The average loan count rose from 18 to 79 year-over-year, potentially due to increased refinancing.

Current Trends

• Despite the favorable Easter shift, March RevPAR growth slowed to 0.8%.
  RevPAR growth was supported by 1.1% ADR growth offset by 0.3% decline in occupancy. RevPAR growth for all chain scales was positive in March but the pace of growth continued to slow with higher priced chains outperforming during the month.
• Strong RevPAR growth in February fueled 7.0% total revenue growth.
  Healthy top line growth in February resulted in an 8.6% increase in GOP dollars. While expense growth has started to moderate, on a TTM basis, margins still contracted 10bps. March’s material slowdown in RevPAR growth suggests that margins will be under pressure for the balance of the year.
• Short-term rental demand increased 5.6% year-over-year in March.
  STRs continued to take share from hotels, with STR demand increasing to 13.4% of demand share from 12.1% in March 2019. Hotel revenues continued to be outpaced by alternative lodging sources with revenue for casinos, cruise lines, and STRs reaching 128%, 136% and 199% of 2019 levels, respectively, compared to hotel revenues which were 121%.

Food for Thought

• Negative headlines have driven consumer sentiment to near Covid lows.
  While wage growth remained steady at 3.8% outpacing inflation by 144 bps in March, declines in the S&P, which is down 5.3% YTD, and flagging consumer confidence, which fell to 86 from 97.5 in April, could be a headwind to hotel demand going forward.
• Inbound international travel dropped 11.6% in March.
  The drop in inbound international visitors creates a headwind to hotel demand. While outbound international travel increased 2.4% to 121% of 2019’s level in March, inbound lagged at 83%. A weaker US dollar could offset inbound travel weakness by boosting foreign visits and encouraging Americans to travel domestically this summer.
• TSA throughput increased 0.2% in April.
  TSA throughput has remained relatively flat. While the meager passenger growth is not a headwind to demand, it does not appear to be a catalyst either. Despite falling airfares, travel trends have continued to slow as Google searches for travel dropped again in April with paid and corporate searches falling 1.3% and 3.2%, respectively.