Amid a broader slowdown in travel spending, U.S. hotels are showing signs that they've hit a growth ceiling.
But while recent data shows that domestic room rates and occupancy growth are slowing, and a wave of promotions would indicate the market is responding, current volatility is muddying any long-term forecasts.
Revenue per available room (RevPAR) slowed to a 0.8% increase in March for domestic properties, CoStar reported, while occupancy dipped 0.3%. Average daily rate (ADR) for the month was up 1.1%, a slide that started in January when it was up 3.3% before falling to a 1.5% bump in February.
"There's definitely a slowdown in the quarter, but there's also a lot of noise," said Isaac Collazo, vice president of CoStar Group's STR Inc., citing factors like hurricane-related impacts, the L.A. fires and even the Super Bowl's shift from Las Vegas to New Orleans.
"If you pull those impacted markets out of the mix, the remaining top U.S. markets were up 3%, which is positive but is still showing signs of moderation," said Collazo. "Was March slow? Yes. But there's so much noise that I'm not attributing anything to increased uncertainty yet."
Other industry analysts are also carefully watching for signs of deceleration.
In mid-April, CBRE adjusted its outlook for the year, cutting its 2025 GDP forecast to 1.9%, below the long-run average of 2.1%, and raising its inflation forecast by 30 basis points, to 2.8%.
CBRE's February hotel performance metrics showed that U.S. hotel RevPAR grew 1.9% year over year, supported by 1.4% ADR growth, which lagged inflation. Occupancy for the month eked out a 0.5% increase.
"It's pretty typical coming out of a downturn that demand tends to moderate," said Bob Webster, vice chairman and co-head of CBRE's national hotel partners, east division. "You'll have several years of significant growth, but then it plateaus, and I think we're seeing part of that dynamic, in addition to certainly some concern relative to inbound travel, which is being impaired."
He added that while Canadian travel to the U.S. has declined, the overall impact has been relatively contained, with inbound travel from Canada on airlines currently off about 7%. And while he thinks that number could increase, Webster was hesitant to make any projections.
The current level of market and political uncertainty has made predictions in general difficult for the industry, with "volatility" the current buzzword among hospitality forecasters.
"This is more volatility than we've seen in the past," said Collazo. "It doesn't fit neatly into other recession models, which is why we're preferring to wait until we have more data under our belts to see what's truly happening."
Collazo said STR is working on its latest hotel industry forecast update, which will be announced at the NYU International Hospitality Investment Forum in June.
"We're starting on it already, but the economic inputs keep changing, so it's going to be really tight, as we probably won't know what consumers will really do until May and June," he said.
The hotel industry's challenges come amid what appears to be a broader travel price correction.
According to NerdWallet's index, overall travel prices decreased 2% year over year as of March, compared with a 1% increase in February.
"That's really been led by decreases in airfare and hotel rooms," said Sally French, a lead travel writer at NerdWallet. "Airfares are down 5.2% year over year, and when you figure inflation is still going up over 2% and travel prices are down 2%, that's very surprising. One reason for that has to do with fuel prices, but there are other reasons, including decreased international travel to the U.S."
Hotel deals for families
According to French, the pricing pullback has prompted a wave of promotions, particularly when it comes to targeting family leisure travel. French cited Walt Disney World's recent offer of 50% off select kids theme park tickets this summer and family-friendly all-inclusives across Mexico and the Caribbean promoting "kids stay free" deals.
"If you're a family and you're not sure where your job is going to be six months from now, it's perfectly rational to decide you're not going on that vacation this year," said French. "But it makes it a little more tempting when there's a half-off Disney ticket or your kids are free at an all-inclusive stay. This is definitely the first time we've seen this level of discounting since the pandemic."
One area where travelers might not see promotions is in luxury lodging, which has demonstrated exceptional resilience over the past few years and continues to outperform other categories. CoStar Group's Collazo reported that U.S. luxury hotel RevPAR was up roughly 7.6% in preliminary Q1 data.
And CBRE's Webster suggested that the sector could benefit from a potential shift in booking behavior.
"We had a huge surge during 2021 and 2022 in the U.S. luxury resort sector, and that surge then transferred overseas to Europe and Asia on the luxury side in 2023 and 2024," he said. "I think we can make the case that drive-to resort business might surprise this year, as luxury travelers respond to market volatility by choosing domestic destinations."