As U.S. hoteliers plan their budgets for 2025, expectations are somewhat tepid. Compared to the strong annual growth rates from 2021 through 2023, lodging performance in 2024 has been disappointing. While overall market conditions should improve in 2025, the forecasted growth rates for most major metrics are still below long-run averages.
For hoteliers located in the major U.S. markets, the outlook for growth is somewhat rosier compared to their counterparts in the more remote and rural areas of the country. According to the August 2024 edition of Hotel Horizons, the 65 major U.S. markets tracked by CBRE are forecast to achieve a revenue per available room gain of 3.3 percent in 2025. The 25 largest markets are forecast to experience a slightly greater RevPAR increase of 3.5 percent. Both growth rates are more than the 2.3 percent gain projected for all U.S. hotels during the year.
After lagging in performance during the initial stages of the post-COVID recovery, the recent premiums of RevPAR growth are attracting the attention of hotel developers. For 2025, CBRE is forecasting supply growth in the 65 Horizons markets to increase by 1.4 percent, which is below the pre-COVID major market supply average annual supply growth rate of 2.3 percent, but above the nationwide average of 0.9 percent for all hotels in 2025.
The demand for hotel rooms in the major cities is expected to increase by 2.3 percent, which would result in occupancy growing by 0.9 percent. This gives hotel operators in the 65 markets some pricing power, and average daily rates in the major markets are projected to increase by 2.4 percent in 2025, which is greater than the national average of 1.8 percent.
When analyzing performance by chain tier, it is the upper-priced properties in the major markets that are forecast to achieve the greatest RevPAR gains.
For 2025, CBRE is forecasting a 3.6 percent RevPAR increase for hotels that operate in the upper-priced category within the major markets. This is greater than the forecasts of 3.0 percent for both the mid-priced and lower-priced hotels in the same geographies.
Interestingly, it is the 1.5 percent projected increase in occupancy that is the primary driver of the upper-priced RevPAR growth premiums, as opposed to ADR. Upper-priced hotels are expected to lead the other price-tier categories in occupancy gains during 2025, but lag in ADR growth (2.1 percent) compared to the 2.3 percent increase forecast for the lower- and mid-priced properties.
Supply and Demand
Savannah (Ga.) is forecast to experience the greatest percentage increase in their lodging inventory (4.1 percent) during 2025. This is not a surprise since the occupancy, ADR, and RevPAR levels projected for the year are all well above 2019 levels, which is very attractive to hotel developers.
Development interest has returned to the New York market. The available room count in New York is forecast to grow by 4.0 percent in 2025. Other favorite markets for development in 2025 are the sunbelt cities of Fort Worth, Nashville and Phoenix.
Closures in 2024 will offset any new hotel development activity in Albany, San Francisco and Pittsburgh. The room inventory in these markets is expected to decline in 2025.
The Nashville market has experienced above-average supply growth since the early 2000s. Fortunately, diverse economic growth has generated growing levels of demand that have kept pace with the supply growth, a trend that is expected to continue in 2025. Lodging demand in Nashville is forecast to increase by 4.6 percent in 2025, the greatest demand growth rate in the U.S. Other markets that are expected to experience above demand gains of more than 3.5 percent are Birmingham (Ala.), New York, Fort Worth, and Sacramento. At the other end of the spectrum, hotels in Albany (NY) are expected to see a 0.4 percent decline in lodging demand during 2025.
Occupancy and ADR
San Francisco continues to lag in the recovery cycle. Despite a nation leading 3.4 percent increase in occupancy forecast for 2025, the annual occupancy level will still be 15.2 percent below the market’s occupancy rate in 2019. New Orleans, Minneapolis, Pittsburgh and Orlando are also projected to benefit from relatively strong gains in occupancy in 2025, but will still lag 2019 occupancy levels at the end of the year.
Comparatively strong supply growth is the primary reason contributing to a decline in occupancy for 12 of the 65 Horizons markets during 2025. Indianapolis, Cincinnati and Savannah are expected to see their market-wide occupancy levels decline the most.
At year-end 2025, the Bay Area markets of San Francisco, San Jose and Oakland are expected to be the only Horizons markets yet to return to 2019 ADR levels in nominal dollars. The Atlanta, Columbia (S.C.) and New Orleans markets are expected to see the greatest ADR gains (over 3.0 percent) in 2025. Cleveland is the only market forecast to suffer a decline in ADR during 2025.
Robert Mandelbaum is research director for CBRE Hotels Research. To learn more about the Hotel Horizons forecast reports for 65 markets in the United States, visit pip.cbrehotels.com/hotelhorizons.
This article was originally published in the October edition of Hotel Management magazine. Subscribe here.