The Pace of Inbound International Travel Recovery Has Slowed

CBRE has positively revised its 2025 Real GDP forecast.
CBRE revised its 2025 GDP growth estimate from a below-average 1.7% to an above-average 2.3%. Inflation is expected to be more persistent with a reacceleration to 2.5% in 2H25. The Fed Funds Target Rate is now expected to decrease by 80-110 bps by year-end 2025.

Employment growth and wage gains are moderating.
In October, employment growth grew 1.4%, down from 1.9% growth a year ago, while wage growth remained roughly 4%, around 139 bps higher than inflation. Real disposable income rose steadily at 2.7%, which could mean that consumers have discretionary income to spend on travel.

CMBS rates declined despite flat credit spreads.
Credit spreads remained at 1.8 p.p. y/y, but CMBS rates dropped to 7.6% from 8.6% a year ago. On a T3M basis, CMBS loan issuance increased four-fold from $0.5 bil. in Oct. 2023 to $2.0 bil. in Oct. 2024. The T3M loan count increased from 12 to 36, and the average loan size increased from $42.2 mil. to $54.9 mil over the same time period.

October RevPAR increased 2.7% as demand shifted because of the election.
A 1.1% increase in ADR coupled with a 1.5% growth in occupancy drove performance as election timing impacted results. All chain scales posted positive RevPAR in October, with outperformance in mid-priced hotels. Similarly, all location types showed positive growth except for resorts, which continued to normalize.

Short-term rental demand grew 7.4% in October.
Short-term rentals continued to take share from hotels, with demand growing 7.4% compared with a 0.8% increase in hotel demand. RevPAR growth for STRs was strong, up 8.5%, with ADR and occupancy increasing to 130% and 100% of 2019 levels, respectively, in October.

Total hotel revenues grew 1.8% in Q3 2024 in line with the YTD trend of 1.9%.
Despite positive total revenue growth in Q3, a 0.7 p.p. contraction in GOP margins led to a 1.1% decrease in profit dollars for the second year in a row. Growth in expenses like wages, insurance, and property taxes continue to outpace total revenue growth but growth rates appear to be moderating.

CBRE expects 0.5% RevPAR growth in 2024 and 1.7% in 2025.
RevPAR growth in 2024 and 2025 is primarily driven by growth in ADR of 0.7% and 1.4% respectively. Occupancy is expected to contract 0.3% in 2024 and remain relatively weak in 2025, increasing only 0.3%. Urban locations, which lagged in recovery from the pandemic, are again expected to outperform resort locations in 2025.

The pace of inbound international travel recovery has slowed.
Outbound international travel increased to 122% of 2019’s level in October while inbound lagged at 90%. If the mid-single-digit growth in visitation continues, it is unlikely that inbound international travel will recover in 2025. Regionally, inbound travel growth on both coasts has slowed materially.

TSA throughput increased 0.2% year-over-year in November.
TSA throughput continues to be well above pre-pandemic levels, but growth is near zero. Similarly, google search trends for paid and loyalty redemption travel continued to soften down 5.7% and 1.8%, respectively, in November.