Performance of the hospitality industry in the United States so far in the year 2024 has been worse than expected with the hotels seeing lower Average Daily Rates (ADRs), leading to a downgrade in projections for the rest of the year.

STR and Tourism Economics have made significant downward adjustments to their 2024-25 United States hotel forecast with the latest revision reflects lower-than-expected performance thus far in 2024 as well as lessened growth projections for the remainder of the year.

In the hotel forecast for the United States, occupancy for the year is now expected to decline after the previous forecast projected year-over-year growth in the metric.

According to a study by US-based hotel industry analytics firm Smith Travel Research (STR), in association with Oxford analytics’ Tourism Economics, there were significant downward adjustments to the 2024-25 US hotel forecast, with the latest revision reflects lower-than-expected performance thus far in 2024 as well as lessened growth projections for the remainder of the year.

For 2024, projected gains in average daily rate (ADR) and revenue per available room (RevPAR) were downgraded 1 percentage points and 2.1 ppts, respectively.

In a press statement, STR says that an occupancy growth projection was kept in place, but downward adjustments were once again made to ADR (-0.8 ppts) and RevPAR (-0.9 ppts) for 2025.

“We have seen a bifurcation in hotel performance over the first four months of the year, which we don’t believe will abate soon. The increased cost of living is affecting lower-to-middle income households and their ability to travel, thus lessening demand for hotels in the lower price tier. The upscale through luxury tier is seeing healthy demand, but pricing power has waned given changes in mix and travel patterns and to a lesser extent, economic conditions. Travel remains a priority for most Americans, but the volume has lessened as prices on goods and services continue to rise,” says Amanda Hite, President, STR.

“Still-elevated interest rates and easing wage growth have contributed to cautious business investment and pinched spending by many middle- and lower-income consumers. Looking beyond this near-term pull-back in demand at lower-tier properties, we expect moderate travel growth to resume, supported by a tempered economic expansion and the continued rebound of group, business, and international travel,” says Aran Ryan, director of industry studies at Tourism Economics.

“Higher operating expenses have led us to forecast lower GOP margins. Labour costs are projected to be nearly 33 pc of total revenues through the remainer of 2024 and will have the greatest impact on GOP margins. Upper Midscale chains are expected to maintain the lowest labor costs, and thus the most competitive GOP margins for most of 2024, which follows pre-pandemic trends,” adds Hite.