STR/TE Market Forecast Assumptions – May 2024

Market Forecasts, produced by STR and Tourism Economics, provide you with the insights needed to anticipate future performance. 

Short-term outlook:

The short-term demand outlook for our 46 forecast markets outside of the U.S. remains stable, with changes to projections caused by economic conditions, updated events calendars, and shifts in consumer interest.

The European market outlook has been improved modestly, with aggregate RevPAR growth for the 30 markets forecasted to reach 5.1% in 2024, which is a slight improvement from the 4.7% expected in February 2024. Increasing economic confidence and updated events calendars will help European markets to maintain strong performance into 2025, with the RevPAR growth projection for next year revised up 0.8 percentage points to 2.8%.

Twenty-six of the 30 European markets are projected for year-over-year growth in average daily rate (ADR) in 2024, albeit at a more subdued, single-digit pace. Spanish markets and smaller northern U.K. markets, like Belfast and Glasgow, project for the strongest YoY growth rates, driven by strong leisure demand.

Dublin, the lone European market forecasted for year-over-year declines in both occupancy and revenue per available room (RevPAR) in 2024, continues to outperform expectations. The market’s ADR outlook has been modestly downgraded, but strong occupancy has more than offset the lack of pricing power.

Outlooks for CEE destinations have started to vary significantly after a difficult 2023. Warsaw projections are nearly unchanged, with RevPAR expected to rise 1.4% YoY in 2024, just 0.2 percentage points ahead of the February outlook. Prague, however, has flourished with significant upgrades to ADR pushing RevPAR growth to 14.3% in 2024. A packed events calendar, improved airlift, and American inbound demand are helping the Czech capital mount a successful catch-up to other European markets. At the opposite end of the spectrum, Budapest is one of just four European markets with RevPAR downgrades for 2024, as demand into the market has not materialized, most especially over weekdays.

Forecast updates for STR’s 14 Asia Pacific forecast markets are like those reported in Europe, with modest RevPAR improvement anticipated in 2024 because of strengthening rooms rates. Regional RevPAR is expected to rise 8.3% in 2024, a 0.7-percentage-point increase from the February forecast. Longer-term expectations are firmly anchored, with 4.8% RevPAR growth forecast for 2025, up from 4.6% in the February edition.

ADR growth projections continue to improve, with a 5.6% YoY increase expected in 2024, up from 4.6% in the February edition of the forecast. While six markets reported moderate ADR improvement in the past quarter, Tokyo was the regional standout, with rates now expected to rise 18.3% in 2024. Tokyo’s extreme ADR growth has continually outpaced expectations, as a combination of labour shortages and long-haul international inbound demand lifted in part by the depreciation of the Yen have lent hoteliers incredible pricing power.

Further south, economic headwinds in Australia and New Zealand as well as the expectation of a slower winter have led to RevPAR downgrades in Melbourne, Sydney, and Auckland. The New Zealand capital is projected for a 1.5% RevPAR decline this year, as domestic demand, hampered by recession and international demand have yet to significantly improve. The latter of those factors is largely due to impending winter and a lack of Chinese travellers.

Tier 2 market, Hangzhou, and neighbouring Tier 1, Shanghai, have likewise struggled to find their footing this year, with a lack of international inbound demand and increased international outbound demand increasing competition for both business and leisure travellers.

Hotel performance in the Middle East continues to impress. The outlook for Dubai is nearly unchanged, with 2.0% RevPAR growth forecasted this year, up modestly from the 1.5% projection in February. A deceleration in pipeline rooms, rising regional interest, and the city’s existing popularity will further support low, slow RevPAR growth in the longer-term. Where Dubai has firmly anchored expectations, Abu Dhabi hotels continue to dramatically increase rates. Lack of new supply combined with the market’s rising popularity for both corporate and leisure travellers has pushed RevPAR growth into the double digits for 2024. The change is expected to be permanent, with Abu Dhabi RevPAR expected to rise year-over-year through 2028.

Long-term outlook:

Long-term expectations are largely unchanged, with regional demand and RevPAR expected to rise annually across the world from 2024 through 2028, and minimal adjustment to year-over-year growth from 2026-28. Long-term ADR growth should likewise remain stable, with the expectation that any long-term changes to ADR growth are caused by economic factors, new supply, or events and their offsets.

The release of UEFA Euro 2028 venues has allowed for long-term ADR upgrades in affected markets across the U.K. and Ireland, with rates expected to rise approximately 2% in Euro markets during the host year.

In the Asia Pacific region, continued participation sample growth in China has again led to downgrades in actual ADR in Beijing and Shanghai, although year-over-year growth trends in both markets have only been minimally adjusted between 2026-28 (see note below for additional detail).

RevPAR growth for 2026-28 remains pegged at a long-term annual average of roughly 2% across all regions. While ADR growth has stabilized, it will remain the primary driver behind RevPAR growth over that time.

Mainland China sample change:

STR continues to grow hotel participation to provide clients around the world with the best and most representative performance data. Recently, several large brands based in Mainland China have started to submit historic performance data backdated to 2019. Due to the size and scale of this submission, data loading has been ongoing since Q4 2023 and is expected to run through the rest of this year.

In the short- and long-term, this affects actualized market performance, most notably ADR, which this quarter has been lowered in both historic and forecast performance for Beijing, Shanghai, and Hangzhou.

In the short-term, year-over-year changes may be affected as data is loaded on a rolling basis.

Once the full historic range of performance is added, however, these figures will begin to stabilize. We will continue to update our forecasts on a quarterly cadence with the historic data available at time of forecast.

Regional U.K. Humanitarian Aid Rooms:

Recent analysis regarding humanitarian aid rooms across the United Kingdom has led to modest changes in the forecast through 2024.

STR estimates that approximately 4-5%, or 30-35k rooms, of the Regional U.K.’s 714k+ inventory, are presently in use for humanitarian aid. The impact on occupancy, however, is more muted as many of these properties are lower occupancy hotels and have not historically benchmarked with STR.

In the longer-term, it’s unlikely that many of these underinvested properties will reopen to normal trading, therefore further reducing long-term impacts.

Supply methodology:

Historic and forecast data utilizes STR’s standard methodology, which considers supply for all open hotels in a market and does not include temporarily closed properties.

Global travel and tourism trends:

Our latest forecast shows that global international arrivals in 2024 are expected to exceed 2019 levels, signaling a recovery surpassing pre-pandemic levels. Decreasing inflation and expected policy rate reduction in H2 2024 will help alleviate additional income pressure. As consumers keep prioritizing discretionary spending on travel, this will enhance global travel throughout the year.

Western Europe is driving growth in Europe, maintaining a lead in recovery of about a year ahead of Eastern Europe markets. Despite this, there are notable areas of promise in Eastern Europe, including Albania and Armenia. North America is on track for recovery, though it will only slightly exceed pre-pandemic visitor numbers from 2019. Our forecast for international arrivals in the Middle East for 2024 has been revised upward. This revision is mainly due to stronger than anticipated tourism performance in Saudi Arabia, following remarkable growth in 2023. The Asia-Pacific region continues to lag the global trend in travel recovery. We predict that APAC will be the only region not to achieve full recovery by the end of 2024.

Although APAC will be the sole region not returning to pre-pandemic levels this year, we expect it to be the fastest-growing region for the remainder of the year, with a more vigorous recovery pace anticipated in 2024, while most regions approach 'normal' growth trends. With the easing of capacity constraints in China, thanks to restored transportation links and streamlined visa processes, we predict outbound trips from China will reach 20% below 2019 levels. Once air capacity is restored in China, a full recovery of outbound travel will follow. This will be good news for all sub-regions of APAC.

Large events that will capture the eyes of the world are occurring in various regions this year. Western Europe is hosting The Olympics and The Euros, in France and Germany, respectively. Events such as these will increase international visitors and global exposure, including destination promotion. Infrastructure development projects are required to cater for the events, creating jobs and providing a lasting social and economic benefit. The T20 Cricket World Cup in the US & Caribbean will provide similar benefits for these regions. Moreover, global phenomenon Taylor Swift’s ‘Era’s’ tour, is ongoing and is set to last the entirety of 2024, visiting several destinations throughout the Americas, Europe and Asia Pacific. Wherever Swift visits on her tour, will be met with huge demand.

Global macroeconomic trends:

We have raised our World GDP growth forecast for both 2024 and 2025. Our 2024 forecast has been increased by 0.2pp to 2.6%, and our 2025 growth forecast has been raised by the same amount, reaching 2.8%. This reflects an improved outlook for the global economy. In the absence of a significant downside growth surprise, inflation and labor market trends remain crucial in determining when and how quickly advanced economy central banks will reduce policy rates.

Due to the US economy growing a little more slowly than we had anticipated in Q1, we have downgraded our GDP forecast from April to May by 0.1 pp for 2024. Despite this, the US economy continues to show underlying strength. However, with consumer prices rising more than anticipated in March, the Federal Reserve is delaying its plan to cut interest rates from June to September in an effort to achieve a soft economic landing.

In China, we forecast GDP will grow by 4.7% this year. This unexpected strength was driven by increased production, which may ultimately increase the risk of destocking in the months ahead. The resultant domestic over supply could lead to a depreciation of the Yuan. Consequently, the domestic over supply is set to be in some way offset by the external environment.

Given the Federal Reserve’s high-for-longer policy stance, we think the People’s Bank of China is likely to tolerate currency weakness from hereon, intending to avoid the undesirable effect that a strong yuan may have on tightening domestic financial conditions.

As anticipated, the Eurozone returned to growth after a year and half of near stagnation. Indeed, the slightly better-than anticipated 0.3% q/q gain suggests the economy has a bit more momentum than we had anticipated, prompting a modest upward revision to our forecast for growth in 2024 to 0.8%, from 0.6% projected previously.

Although headline inflation was unchanged at 2.4%, core inflation dropped, as did the rather sticky services inflation after five months of being stuck at 4%. We expect the ECB will start its interest rate cutting cycle in June. The June rate cut should be followed by several more this year, although the exact speed and magnitude of policy easing is uncertain.

While recent inflation data in the UK have given the BOE pause for thought, we still expect a rate cut in June. With this considered, we anticipate a total of 75bps of rate cuts this year. We raised our UK GDP growth forecast for 2024 to 0.9% from 0.6% due to a much stronger-than-expected outturn for Q1 and evidence that the momentum has been sustained in early Q2.