Global hotel performance begins to normalize

Global hotel revenue per available room (RevPAR) stayed high through the first five months of 2024 at 13.2% above 2019 levels. Though performance remains robust, demand has begun to normalize in many markets as growth relative to 2019 has slipped over the past three months, driven by lower consumer savings, particularly across the United States.

While accelerating business travel and strengthening international demand have mitigated some of these declines, the Americas saw performance drop for the first time in nearly two years in Q2, with resort and leisure-heavy destinations experiencing the largest falls. In Asia Pacific the reopening of all borders in late 2023 has yet to spur as much travel as expected; YTD RevPAR is still sitting 11% below 2019, although performance is predicted to recover to pre-pandemic levels by year-end. Hotel demand in EMEA remains strong, with RevPAR growth outpacing all other regions. We expect European RevPAR to increase even further in the coming months, driven by the Paris Olympics which is anticipated to generate record demand for the city and surrounding markets.

Future trends: Hotel brands putting balance sheets to work as supply growth slows

Short-term: Amid a challenging and high-cost construction environment, hotel brands are using their balance sheets to fuel net unit growth (NUG), a key driver of shareholder value. Hilton has thus far been the most aggressive, acquiring both Graduate Hotels and Nomad for a combined US$275 million. Others are likely to follow suit in the coming months, with Hyatt, IHG and Marriott actively offering key money to expand their luxury portfolios and help investors facilitate transactions.

Long-term: Global hotel supply is expected to grow at an average rate of only 2.4% over the next five years, 180bps less than its long-term average as the number of rooms in construction has declined nearly 8.5% from its 2019 peak. We expect this slowing supply growth to benefit existing hotels, particularly in markets where demand has yet to recover. Hotels in urban cores and other high barrier-to-entry markets will likely see the largest benefit. Until construction costs abate and supply chain disruptions ease, the only projects being built in many markets are those with exceptional sponsorship funded by well-capitalized investors. By contrast, a boom in supply is anticipated across the Middle East and India, both of which will garner increased global investor interest over the coming years.