U.S. Hotel Industry Braces for Modest Growth Amid Economic and Environmental Challenges

According to STR/Tourism Economics, the U.S. hotel industry is projected to experience subdued growth in 2025, influenced by various economic pressures and natural events. Despite these challenges, certain segments like luxury hotels and business transient bookings show resilience, providing a nuanced outlook for the sector.

Revised Revenue Projections

The latest forecast from STR/TE for June 2025 indicates a downward revision in the U.S. hotel market’s Revenue per Available Room (RevPAR), now expected to grow by only 1.0%. This adjustment, a decrease of 80 basis points from previous estimates, is attributed to shifts in the calendar, weakening macroeconomic indicators, and uncertainties stemming from erratic tariff implementations and significant federal job cuts. Additionally, softening international inbound travel contributes to a cautious outlook.

Despite the overall downgrade, specific areas such as Average Daily Rate (ADR) are expected to grow 1.3%, albeit slightly reduced from earlier predictions. The primary concern for the industry in 2025 is the tepid demand growth, forecasted at just 0.5% over the previous year.

Impact of Natural Disasters

The forecast also highlights the significant role of natural disasters, particularly Hurricanes Helene and Milton, in shaping market performance. These events have temporarily boosted hotel performance in affected areas through the first quarter of 2025. However, as the impact of these hurricanes begins to wane, a negative adjustment is anticipated for the fourth quarter, affecting overall demand growth comparisons.

Chain Scale Performance Variations

Performance across different hotel chain scales is expected to vary significantly. Luxury hotels continue to lead in demand and ADR growth, largely insulated from short-term economic pressures. In contrast, hotels in the select service segment face the most substantial downgrades in RevPAR, driven by vulnerabilities in corporate and leisure demand among middle-income consumers.

Regional Market Dynamics

Regionally, markets in the Southern U.S., particularly those impacted by Hurricanes Milton and Helene, have shown robust demand growth through March 2025. However, this is expected to normalize starting in April. The fourth quarter is likely to see a significant pullback as the effects of hurricane performance diminish.

Additionally, the supply side is experiencing near-term setbacks as pipeline projects are either delayed or canceled due to the current economic environment. This slowdown in new supply could have mixed effects on the market, potentially alleviating some pressure on RevPAR but also indicating broader economic challenges.

Event and Segmentation Shifts

The industry’s approach to large-scale events and group bookings is also shifting. While major events like the Super Bowl drive significant demand and ADR growth, the response to mid-scale and lower-end events has become more muted. Business sentiment has weakened since the start of the year, affecting corporate travel and event participation. The business transient segment, however, shows some positive trends, particularly in upper-tier market segments during weekdays.

International Travel Trends

International travel dynamics are also shifting, with inbound demand from key markets like Canada, Mexico, the EU, and APAC countries expected to decline significantly in 2025. This downturn is largely due to global tariff impacts and changing perceptions of the U.S. as a travel destination. However, unique international events like the FIFA World Cup and the Olympics are anticipated to bolster U.S. perceptions and aid in recovery by 2029.

Long-Term Outlook

Looking beyond 2025, the long-term outlook for the U.S. hotel market suggests modest RevPAR growth of 1.5% in 2026 and 1.8% in 2027, with a slight acceleration expected in the following years. While ADR remains a strong performance driver, the broader economic environment poses ongoing challenges, particularly for non-luxury segments and discretionary travel spending.

The U.S. hotel industry faces a complex array of challenges and opportunities as it navigates through economic uncertainties and natural disaster impacts. While certain segments show resilience, the overall market growth remains cautious, with a keen focus on adapting to evolving consumer and corporate behaviors.

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