Global hotel performance begins to normalize

Global hotel revenue per available room (RevPAR) increased by 12.8%, relative to pre-pandemic 2019 levels, through the first eight months of 2024. Though performance continues to be robust, demand decelerated for a second consecutive quarter, driven by softening leisure travel stemming from declines in consumer savings, particularly in the United States. While strengthening business, group and international travel mitigated some of these declines, resort and leisure-heavy destinations experienced a meaningful dip in performance.

Europe remains a bright spot, with RevPAR growth increasing 6.3 percentage points over the last three months, fueled primarily by the Paris Olympics. In Asia Pacific, the reopening of all borders in late 2023 has yet to spur as much travel as expected, with year-to-date RevPAR still sitting 10.7% below 2019. Meanwhile, performance has weakened in the Americas as consumer savings fall. Recent Fed rate cuts will provide some consumer respite which should benefit domestic travel over the medium term.

Future trends: Slowing supply growth a tailwind for hotel performance and transactions

Outlook for 2025: Global hotel performance is likely to normalize in 2025, with annualized growth expected to return to sub-4% levels. Leisure travel, which has been the primary driver of demand in the post-Covid era, will moderate while group, corporate and international travel return to pre-Covid levels. Limited supply growth underpinned by high development costs will help operators keep rates elevated, mitigating some erosion in profitability driven by rising costs. This dynamic, combined with declines in interest rates, should spur a meaningful uptick in asset transactions as well as brand-funded M&A. Luxury assets will be the largest recipients of capital, with brands likely to target accretive portfolios to fuel net unit growth, a key driver of shareholder value.

Long-term: Global hotel supply is expected to grow an average of only 2.4% per annum over the next five years, 180bps less than its long-term average as the number of rooms under construction has declined nearly 8.5% from its 2019 peak. This slowing supply growth will benefit existing hotels, particularly in markets where demand has yet to recover. Hotels in urban cores and other high barrier-to-entry markets will likely see the largest benefit. Until construction costs abate and supply chain disruptions ease, the only projects being built are those with exceptional sponsorship funded by well-capitalized investors. Outsized supply growth is expected across the Middle East and India, both of which will garner increased global investor interest over the coming years.