Key Takeaways:

Economy

  • CBRE expects below-average GDP growth through 2025.
    Despite recent upside surprises, CBRE expects below-average growth for the next several quarters, with 2025 GDP growth forecasted at 1.7% below the 2.1% long-run average. Inflation is expected to ease from Q3 2024’s 2.6% estimate to 2.3% in 2025.
  • Unemployment ticked down for the second consecutive month in September.
    Employment improved slightly by 0.2% in September, while job openings per job seekers was 20 bps below 2019 levels at 1.4. September, wage growth remained around 4%, still 157 bps higher than inflation, which could help support discretionary travel spending.
  • Borrowing rates are slightly elevated at 5.8% but well below their highs.
    CMBS borrowing rates were 5.8% in September. CMBS loan issuance increased from $0.3 bil. in September 2023 to $1.5 bil. in September 2024. With the average loan count increasing slightly, the average loan size nearly quadrupled year-over-year from $27.3 mil. to $101.4 mil. in September 2024.

Current Trends

  • The summer travel rally for hotels failed to materialize.
    Q3 performance trends were weaker than expected. ADR continued to lag inflation at 0.6% and occupancy declined 0.8%, resulting in a 0.2% decline in RevPAR. Business centric chain scales and location types outperformed, while leisure and resort locations underperformed.
  • GDS and Group channel demand benefited from the calendar shift.
    The shift in the Jewish holidays to October from September supported GDS and Group channel demand, which rose 4.3% and 1.3% in Q3. OTA bookings increased 3.3%, outpacing the 1.9% growth in Brand.com demand, possibly indicating a normalization in distribution trends.
  • Total revenues grew 3.6% in August above the 2.0% YTD trend.
    The extra weekend in August drove above-average revenue growth and 30 bps of margin expansion during the month, resulting in a 4.7% increase in profit dollars. Wage pressures and property taxes are moderating, but, in aggregate, costs remain above average resulting in 90 bps of margin contraction on a TTM basis.

Food for Thought

  • Short-term rental demand outpaced hotel demand again in September.
    In September, short-term rentals continued to take share from hotels, with demand growing nearly 8% compared with a 0.1% contraction in hotel demand. The 2.7% growth in STR ADR was more than offset by a 4 pps contraction in occupancy, causing RevPAR to decline by 1.6% in September.
  • The gap between inbound and outbound international travel persists.
    Outbound international travel increased to 122% of 2019’s level in September, while inbound lagged at 88%. The gap between inbound and outbound travel continues to weigh on hotel occupancy. Travel from Japan and China reached a post-pandemic high of 58% in September.
  • Slowing TSA throughput growth is a risk to watch.
    TSA throughput growth slowed to just 0.8% y/y in October, below the 5.5% YTD trend. Search trends for paid and redemption travel showed improvement in October suggesting travel trends could pick up as we head into the holiday season.

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About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world's largest commercial real estate services and investment firm (based on 2021 revenue). The company has more than 105,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

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