U.S. RevPAR is growing by 1.2% this year, down from its previous expected rise of 2%, revealed CBRE forecasts. Despite the reduced full-year expectations, RevPAR growth is projected to improve in the second half of the year, increasing by 2% compared to only 0.5% in H1 2024.
Growth projections for the second half of the year are underpinned by demand from election-linked events in the U.S., easier prior-year comparisons, increase in inbound international visitors, anticipated interest rate cuts and a marginal improvement in group and business travel. Urban and airport location hotels are likely to outperform, while resort locations will continue to underperform as post-pandemic leisure travel trends normalize.
The outlook for Northern Latin America (Colombia, Costa Rica and Mexico) continues to stay strong, with occupancy in Costa Rica this year projected to surpass its 2019 level of 67%. Colombia’s hospitality sector can attract over 6 million tourists this year, led by an improving economy, lower inflation, interest rate cuts and government initiatives to boost the hospitality sector. Tourism in Mexico will remain strong, attracting foreign investors and boosting the country’s status as a leading global tourism market.
Europe’s hotel and tourism sectors are set for continued expansion, although at a more modest pace than in the last few years. CBRE projects healthy growth for key European gateway cities, supported by increased volume of inbound international travelers and corporate travel. Luxury and resort locations are poised to outperform other segments, reflecting high-income travelers’ leaning towards personalized experiences and reduced macroeconomic headwinds. However, after strong gains in 2023, RevPAR growth will decelerate to around 5% this year, with the reduction primarily due to weakening U.S. demand.
CBRE’s outlook for the Middle East remains positive, following a continued robust growth in the first half of the year. H1 2024 saw better hotel operational performance in almost all major cities in the GCC. Tourism-related megaprojects were announced in Saudi Arabia and regulatory changes in the U.A.E. is expected to boost the hospitality sector.
In Asia Pacific, all hotel markets, except for the Maldives, saw YOY lifts in RevPAR in the first half of the year. Despite challenges in staffing and aircraft shortages, the region has recorded significant growth in airline travel so far this year.
The U.S.
Lukewarm RevPAR growth continued into the first half of the year, with an increase of just 0.5%. While CBRE had expected a slowdown, growth has been more modest than anticipated, despite a resilient economy. Headwinds, such as record outbound overseas international travel, weaker consumer and morec competition from short-term rentals, cruise lines and other accommodation alternatives have offset the recovery in inbound international travel and modest pickup in both group and individual business travel.
CBRE expects RevPAR to grow by 2% in H2 2024, up from 0.5% in H1 2024. The reduction in the full-year RevPAR growth is largest for resort locations, which are now expected to see a flat YOY growth in RevPAR versus an 1.6% rise in the previous forecast.
While there is still demand for leisure travel, an increasing number of Americans are vacationing in Europe and Central and Latin America and more frequently using cruise lines and short-term rentals, which continue to erode traditional hotels’ market share.
Through H1 2024, RevPAR in 57 of the 65 U.S. markets tracked by CBRE had returned to pre-pandemic levels. Most of the eight markets that are yet to fully recover are in northern California and the upper Midwest. RevPAR in major markets on the East Coast — such as New York, Boston, Washington D.C., Atlanta and Miami — has surpassed 2019’s levels.
CBRE’s baseline forecast for this year is for GDP growth of 2.6% and average inflation of 2.9%. After stronger-than-expected GDP growth in the second quarter, CBRE expects the expansion to ease during the latter half of the year and into 2025. Softening consumer spending will pull down hotel demand, as will competitive threats from lodging alternatives.
Given the high construction and financing costs, CBRE expects modest hotel supply growth of less than 1% in the next three years. Increasing global wealth and muted supply growth is expected to support solid hotel fundamentals in the longer term.
RevPAR is projected to increase at a CAGR of 2.5% over the next five years, barring a recession or exogenous shock to the global economy. Urban hotels will outperform, with RevPAR likely to achieve a CAGR of 3.5%, as those locations have been the slowest to recover and stand to benefit the most from inbound international travel.
Latin America
Tourism in Mexico seems to be recovering, with 18.1 million international visitors arriving in the country till May 2024, closing in on 2019 levels. Visitors from the U.S. constituted 63% of arrivals, up 8.2 percentage points from the January-May 2019 period, followed by Canada with 13%, Colombia with 3% and the U.K. with 2%.
As of May, 9.8 million international visitors this year have stayed in hotels. This figure is 3% higher than pre-pandemic levels. Total average occupancy in May reached 60.3%, 0.8 percentage points below 2019 levels. However, beach destinations (such as Cancun, Los Cabos and Mazatlan) posted above-average occupancy of 78.2%, 76.9% and 64.8%, respectively.
Europe
Despite the positive outlook for Europe’s hotel and tourism sector, RevPAR will slow down to a more normalized pace. Signals of softening of U.S. consumer travel demand play into the projections, but intra-European and other global demand continues to portend for positive RevPAR growth through this year.
Geopolitical concerns will continue to pose challenges and impact tourism flows and resulting in some travelers shifting their focus to northern and western Europe.
Europe is projected to receive more international tourists and overnight stays, which have surpassed pre-pandemic levels so far this year. This was mostly driven by big sporting and entertainment events and popular music concerts and festivals. Leisure travel will continue to outpace business travel, reflecting European consumers’ preference for focusing discretionary spending on travel and entertainment.
Although tourists from the U.S. will remain a key source of hotel demand, travel from this market will soften in the short term. The U.S. slowdown should be partly offset by increased long-haul travel from Asia, particularly China, as air capacity gradually recovers.
Luxury and resort properties will outperform other segments, driven by high-income consumer’ preference for personalized travel experiences and reduced macroeconomic headwinds.
Hotel supply growth in key markets remains well below the historical trend. While the U.K. and Germany lead in terms of the number of rooms being added; Ireland and Poland are expected to see the biggest increase from the previous year in the hotel construction pipeline growth.
Supply and demand are expected to be in balance in France, Spain and Italy, where new hotel development is relatively low and international visitors continue to increase.
Middle East
The Middle East’s hotel and tourism sectors continued to exhibit strong growth in H1 2024, boosting CBRE’s positive outlook for the year. Wynn’s announcement of the Wynn Al Marjan Island integrated resort in the U.A.E. has proven to be a key milestone for the regional hotel market. Anticipated to be the first official gaming establishment in the GCC, it will stimulate visitation and further diversify the emirates’ demand base, making the U.A.E. less susceptible to exogenous demand shocks.
The U.A.E.’s hospitality sector registered a healthy growth in the first half. Dubai recorded a 9.9% YOY increase in international visitors, which increased to 8.12 million; Abu Dhabi reported 21.4% YOY growth in hotel guests, which totaled 2.18 million. Hotel performance has been solid, with H1 2024 occupancy and RevPAR in the U.A.E. standing at 5% and 30% above H1 2019 levels, respectively.
Saudi Arabia’s tourism sector is undergoing rapid transformation as the Public Investment Fund (PIF) and its subsidiaries continue to launch new initiatives. Given that each PIF entity has its own robust brand identity, CBRE expects to see the inbound leisure segment evolve dramatically from its current state as these developments come to market.
In Saudi Arabia, occupancy now stands 3.8 percentage points above the H1 2019 level. RevPAR has grown even more vigorously, up 44% over the same period. These numbers are expected to rise further as the public and private sectors collaborate to transform the country’s tourism landscape.
Asia Pacific
ADRs remained largely stable across the region, with RevPAR growth being driven by an 80bps increase in average occupancy levels so far this year. However, there is still room for growth, with average occupancy levels still about 370bps below the average set in 2019.
There’s been a significant growth in air travel, with the International Air Transport Association (IATA) estimating that total passenger count would increase 17.4% this year, and 12.1% in 2025. Asia Pacific has emerged as the largest demand base for airlines globally, accounting for approximately 34% of all travelers worldwide this year. By 2043, IATA estimates that the region’s share will increase to more than 46%.
Mainland Chinese tourists have returned in huge numbers to markets, like Japan, Korea and Southeast Asia. Visa-free entry and weaker currencies also help stimulate this travel. Bloomberg Intelligence expects international outbound air travel from mainland China to touch nearly 90% of pre-pandemic levels by the end of this year, and to reach 2019 levels by 2025-end.