Key Takeaways:

  • Economy

    Upside to GDP fails to catalyze incremental demand.
    Between 3Q23 and 2Q24 CBRE positively revised its 2024 GDP forecast from 0.4% to 2.3%, +190bps. Over the same period, CBRE lowered its hotel demand growth forecast from +1.9% to +0.9%, -100bps. The historical relationship between demand and GDP has broken down owing to competitive encroachment and lagging inbound international travel.Stabilizing interest rates and maturities drive loan issuance.
    Total loans originated in April 2024 increased 2.5x y/y from $0.4 billion to $1 billion, and the number of loans increased a little less than two-fold from 23 to 40. The average loan size was relatively consistent at $19 - $20 million, suggesting smaller deals are getting done.
  • The burndown of COVID savings and increasing credit levels are headwinds.
    Excess Covid savings have been spent, and the personal savings rate has fallen to 3.6%, below the 5.7% long-term average. Credit card borrowings are now above pre-pandemic levels and leverage is increasing, a headwind to further growth.

  • Current Trends

    Neutralizing the Easter shift, March and April RevPAR combined declined 1%.
    March/April's combined -1% RevPAR was slightly below January/February's -0.5% trend, but not by much. April standalone RevPAR increased by 1.7%, benefitting from the shift to a higher business mix. Coming into the summer months, leisure will be increasingly important.Growth in short term rental demand took a breather in April due to Easter shift.
    Given their leisure-oriented nature, short-term rentals were impacted by the absence of the Easter holiday in April 2024. However, in general, alternative lodging options continue to outperform hotels, with short-term rental revenues still well above 2019 levels at 161% compared with hotel revenues, which reached 118% in April.
  • TSA throughput increased 7.7% year-over-year in May.
    Increased passenger volumes have not translated into stronger RevPAR performance at Airport hotels, which were flat on a combined basis in March/April. Looking out over the next few months, Google search trend data suggests continued softness for paid, redemption, and all-inclusive travel.

  • Food for Thought

    Weak Q1 caused CBRE to reduce 2024 RevPAR growth forecast from 3% to 2%.
    CBRE expects 2024 RevPAR to be bolstered by a 0.2% increase in occupancy and a 1.7% increase in ADR, driven primarily by growth in group, business transient and international travel. Urban and airport locations are expected to outperform in 2024.March marks the second straight year of GOP margin contraction.
    Total revenue declines of 1.0% in March and a 0.6 p.p. contraction in margins resulted in a 2.6% decrease in GOP dollars. While wage growth has slowed, it remains above historical averages. Labor costs, insurance expenses, and property taxes are likely to continue to be a headwind to margins and profits going forward.
  • Outbound international travel is still outpacing inbound.
    Looking at March and April combined, outbound international travel was 117% of 2019 levels compared to inbound visitation of 86%. While still improving from a year ago, inbound travel from Japan and China has been leveling off at ~50% of 2019 since August 2023.

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