Hospitality Investing News - Southeast January 2025

Another interest rate cut in December brings to the total decrease in interest rates to a full point. There’s still a way to go to get near where the debt markets were before the Fed’s exponential rise, but this is a positive trend that is building confidence in buyers. While we won’t have full year end numbers until later this month, 2024 shaped up to overall be an “okay” year for hotels. Not necessarily bad, but also not necessarily one to write home about. This trend seems to be set to continue for the immediate part of the new year, where ever bright spot in the data also seems to cast a shadow somewhere.

RevPARs increased 2.5% in November. The interesting part was that this increase was mainly driven by Occupancy, which has been a rarity for 2024. Hotel demand rose 2.2%, but supply also increased by 0.6%, leaving occupancy 3.3 percentage points behind 2019 levels. November demand was the second-highest ever for the month, behind only 2019.

November brought, for the first time ever, a reversing of the bifurcation we have seen in hotels. Economy and Midscale hotels saw a 5% gain in RevPAR, while upper-upscale and upper-midscale grew only 2.6%, Luxury hotels still lead the pack with a 5.3% gain in RevPAR. However, inflation (2.7%) outpaced average daily rate (ADR) growth, meaning real ADR declined. This trend of ADR not outpacing inflation may have analysts their underwriting start to reconsider the idea that ADR growth should outpace inflation. Hotel conversions remain below the 20-year average, with brand-to-independent conversions being the most common.

The travel industry is returning to the fundamentals - destinations, downtowns, and interstates/airports. Inflation isn’t just affecting hotels operationally; it is also affecting hotels economically. According to MMGY Travel Intelligence, 80% of Americans have a strong desire to travel in 2025 and plan to spend more of their disposable income on travel. Americans are upping their travel budgets and frequency of trips. However, as with every year, the reality of the increase in everyday expenses will force travelers to really consider where, how much, and what they are getting for their spend.