The mood at the New York University International Hotel Investment Forum, which took place this week at the New York Marriott Marquis, was neither overtly pessimistic nor excitedly optimistic. Industry participants were looking for upside, but the uncertainty infused into the macroeconomic picture by the on-again/off-again tariffs has put many deals on hold.
In addition, that uncertainty forced Oxford Economics to cut its projected gross domestic product growth rate for 2025 from 2.4% to 1.5%. Deutsche Bank economist and speaker Matthew Luzzetti echoed the sentiment of slower growth, but he was clear that the firm's current macro-baseline does not include a recession. One interesting data series he shared showed that consumer sentiment is heavily influenced by political party affiliation and that sentiment swings with whichever party is in power. Or, in his words, “50% of consumers are always in a felt recession.”
Amanda Hite, president of STR, a CoStar company, translated the slower top-line growth into slower revenue per available room, or RevPAR growth, and presented the revised STR forecast of 1% growth for the year. The prior forecast had called for 1.8% growth. Average daily rate increases are expected to remain below the level of inflation, leading to a decline in real ADR. And Luzzetti’s outlook was that a related inflation measure could go as high as 3.5% this year, which suggests even further upward cost pressures and additional pressure on margins.
His “wild card” was the employment situation, which so far has held up remarkably well. While consumers have jobs, they have money to spend on vacations, here and abroad. However, any weakness in the job market would likely affect discretionary spending — in other words, spending on travel and hotel demand.
Talking to hotel operators, it seems to me that consumers are expecting a slowing economy, and with that comes more hesitation to book a trip further in advance. And the STR occupancy-on-the-books data suggests as much.
Dealmakers on the main stage pointed at the “incredibly strong” commercial mortgage-backed securities, or CMBS market, as a healthy sign. Still, they hastened to add that this debt was often used to refinance hotels and not as a capital source for new deals. RLJ’s Chief Investment Officer Jeffrey Dauray summed it up as a “challenging transaction environment.” Michael Bluhm, Global Head of Lodging & Leisure at Jefferies, added that “no one escaped the cap rate expansion,” a sentiment I heard from other brokers at the conference. Deutsche Bank’s outlook for 10-year treasury rates in the 4.5% range added to the sentiment that higher interest rates would prevail, making hotel deals harder to pencil.
For the remainder of the year, the expectation is for slow and steady growth in top-line revenues and the transaction side. Operators and dealmakers are keeping one eye on economic growth and the other on making the next deal work. Unfortunately, consumers are less decisive about booking travel, and that will lead to short booking windows and limited visibility of forward-looking demand. But, if history is a guide, industry participants will continue to tell themselves that “next quarter will be better” and that optimism will sustain us until we meet again in Phoenix in October.
Jan Freitag is the national director for hospitality market analytics at CoStar.
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