CBRE: 2024 Global Hotels Outlook

Sector-Specific Tailwinds Should Offset Broader Economic Challenges

Executive Summary

U.S.

After RevPAR rose to a record high in 2023, CBRE expects the U.S. to see another year of improvement in 2024. RevPAR growth is forecast to reach about 3% year-over-year, driven by the ongoing recovery in inbound international travel; strong performance in the meetings and group events segment; and continued demand from leisure travelers. Urban locations with leisure appeal and higher-priced hotels should outperform, but traditional hotel demand and pricing will likely be tempered by competition from alternative sources like cruise lines, short-term rentals, and glamping.

Caribbean

The Caribbean has made a remarkable recovery over the last 24-36 months and appears poised for continued growth, backed by a continued influx of tourists from the U.S. and limited new supply. While some risks remain, particularly the impact of climate change and hurricanes, the region’s resilience during the pandemic should provide a foundation for continued strong performance over the course of 2024 and beyond.

Mexico

The Mexican Ministry of Tourism estimates that in 2024, international tourist arrivals to the country could increase by up to 5.4% and foreign expenditures by up to 0.3% compared to 2023. Beach resorts, such as the Riviera Maya, Los Cabos, and Cancun, can expect to see above-average hotel occupancy in 2024, supported by new developments and even with the completion of new hotel rooms this year.

Asia Pacific

Although airline capacity in Asia Pacific is yet to fully recover to pre-pandemic levels, CBRE forecasts that total international tourism arrivals should reach 2019 levels by the end of this year. While ADRs are expected to normalize in most markets, occupancy growth in well-managed assets should drive revenue growth. Operators that demonstrate flexibility and capitalize on the upswing in tourism will be the main beneficiaries, particularly those in North Asian markets, such as Japan and Korea.

Europe

Europe’s hotel and tourism sector is poised to gain further momentum in 2024, with domestic and short-haul leisure travel remaining as the primary drivers of hotel demand. Additional tailwinds will be provided by a rise in international long-haul leisure travel from Asia, supported by the addition of more long-haul flights, which should support solid growth in the volume of long-haul inbound travelers.

Business travel, particularly the international long-haul segment, is expected to show meaningful year-over-year improvement. However, this category will lag the leisure segment due to the slow return to the office in some markets and the growing prevalence of virtual meetings.

Several major upcoming sporting and entertainment events should help certain hotel operators increase room rates and raise occupancy. These include the 2024 Summer Olympics in Paris and the 2024 UEFA European Football Championship in Germany, as well as major concert tours by Coldplay and Taylor Swift.

The conflicts in Ukraine and the Middle East may cause some travelers to shift their travel plans to northern and western Europe, as was seen during prior periods of conflict. As these are generally higher ADR markets, this shift could be another catalyst for occupancy growth and rate compression during peak periods.

After strong growth in RevPAR fueled by inflation and surging demand in 2023, momentum is likely to moderate. CBRE expects RevPAR growth in 2024 to decelerate to a high single-digit rate, indicating a return to more normalized levels of demand growth.

Hotel operators’ ability to adapt quickly to changing market conditions during the pandemic has led to improved operational efficiency, ensuring they are well positioned to maintain profitability in the face of potentially challenging economic conditions. However, simultaneous increases in utility costs and ongoing wage growth require operators to adopt a proactive approach to revenue management and implement rigorous cost-control measures.

The luxury and resort segments are expected to outperform other categories in 2024 due to strong wealth creation and high-income groups’ growing preference for personalized experiences. These drivers are less vulnerable to macroeconomic headwinds, further solidifying the positive outlook for these segments.

From 2009 to 2023, overall European hotel supply grew at a compound annual growth rate (CAGR) of 1.4%. Starting this year, supply growth is expected to moderate to a CAGR of just 1%, well below the estimated 3% year-over-year rise in visitor arrivals. This will provide a solid foundation for future RevPAR gains.

The UK and Germany are at the forefront of European hotel developments, collectively accounting for over a third of the total hotel pipeline from 2024 to 2028. These markets will therefore experience relatively higher growth in the number of hotel rooms.

France, Spain and Italy will see a more favorable supply and demand balance, with relatively limited new hotel development and increased international inbound visitors in 2024 and beyond. These trends underscore the potential for further gains in RevPAR and operating income in these markets and reaffirms their status as attractive investment targets.

Average hotel occupancy in Europe rose to 69% as of end-December 2023, signaling a general recovery in occupancy across key markets. Nevertheless, this figure remains about 500 bps below 2019 levels. While the uptick in occupancy has been noteworthy, it will have only a moderate impact on hotel revenue growth in 2024.

After significant interest rate increases negatively impacted hotel investment volume across most European markets in 2023, hotel transactions are expected to gradually pick up in 2024. Investment activity is likely to be backloaded in the second half of the year after investors obtain clearer insight into interest rate movements.

Improving operating fundamentals will boost confidence among some hotel owners, making them reluctant to lower asking prices. This will set hotels apart from other commercial real estate sectors that have undergone substantial repricing. At the same time, investors are expected to maintain a more patient yet active stance, guided by the expectation that easing inflation will eventually lead to lower financing costs.

The enduring strength in leisure demand and increased preference for personalized experiences will continue to direct buyers to hotels in popular tourism and resort destinations. We expect institutional funds and private investors to strategically allocate capital towards premium hotels in key leisure and tourism locations across Spain, Portugal, and Italy over the course of 2024.

We also expect opportunistic investors to eye European hotel properties that have the potential for operational improvements. The introduction of stricter ESG policies and regulations for hotels will also prompt more retrofitting to ensure properties meet higher sustainability standards.

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