Global hotel performance remains strong

While Global Revenue Per Available Room (RevPAR) kept up its record-setting pace, growing 3.9% through the first two months of 2025, a renewed wave of uncertainty is on the horizon amid increasing geopolitical tensions and economic volatility. Much of this stems from the United States, the world’s largest outbound travel market post-Covid. Despite possible future travel pullback, current demand remains strong with all three regions posting growth over the year-to-date.

Performance continues to be uneven, with demand across Asia Pacific and EMEA accelerating while the Americas has begun to show some softness. Global resort and leisure-heavy markets, which were generally the first to recover following the Covid-19 pandemic, have started to see some normalization in demand underpinned by slowing consumer spending amid some contraction in savings. Conversely, demand for urban markets has accelerated significantly, though it could be at risk of a slowdown should the current volatility have a more pronounced impact on international travel. Slowing supply growth combined with the return of group and corporate travel is expected to fuel 2% to 4% global RevPAR growth in 2025.

Future trends: Hotel brands shift strategic priorities

Short-term: Amid a challenging and high-cost construction environment, hotel brands are increasingly using their balance sheets to fuel net unit growth (NUG), a key driver of shareholder value. Hilton and Hyatt were the most aggressive in 2024, acquiring Graduate Hotels & Nomad and Standard International respectively. Hyatt has since announced plans to acquire Playa Hotels & Resorts for US$2.7 billion. More brand M&A is expected to materialize throughout 2025 as global hotel supply will grow only 1.7%, 250bps less than its long-term average. Third-party hotel management companies, non-traditional lodging brands, and hotels in the lifestyle sector are likely to attract the most capital.

Long-term: The global portion of branded hotels managed by third parties (i.e., franchised) increased 3.8pp in 2024 and should accelerate further in the next three-five years as most major hotel brands look to mitigate risk and fuel shareholder value. All major brands have signaled a willingness to shift management contracts into franchise agreements, which should free up capital to help facilitate transactions and increase brand-acquisition activity. This should create opportunity in the highly fragmented third-party management space with new players, increased partnerships and M&A likely to emerge. Owners will increasingly embrace this shift in operating models, particularly those faced with ongoing profitability challenges.