STR/TE Market Forecast Assumptions – August 2024

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

New markets now available: STR and Tourism Economics are pleased to announce the addition of five forecast markets: Lisbon, Portugal; Sanya, China; Brisbane Centre, Australia; Riyadh, Saudi Arabia; and Jeddah, Saudi Arabia. Forecast subscriptions for these markets are now available for purchase alongside our existing 55 market forecasts. Assumptions for each of the markets are detailed at the end of this piece.

Europe short-term outlook: 

Aggregated RevPAR growth for STR’s 31 European markets is forecasted to reach 5.7% in 2024, with growth driven primarily by a gain in average daily rate (ADR) of 3.8%. Year-to-date ADR growth has been fueled by above-average inflation in many regions, as well as the return of both corporate and leisure events.
Three markets are projected for RevPAR declines this year. High supply growth in Gatwick Airport, Manchester Centre, and Dublin has increased competition and led to falling ADR among market hotels.

An incredibly successful UEFA Euros Championship hosted by Germany has led to prominent upgrades to German market RevPAR in 2024. However, with little changed outside of the tournament, 2025 performance expectations have been modestly downgraded to compensate for that stronger-than-expected demand and ADR growth over the event period.
The balance of RevPAR growth will shift in 2025, with occupancy (+1.8%) driving the expected 2.5% improvement in RevPAR. ADR will continue to rise at a subdued pace as travelers become increasingly price sensitive. 

Price sensitivity is evident at the market level, with ADR declines forecasted in 11 European markets in 2025, compared to five markets in 2024. German markets feature heavily in this list, both due to UEFA Euros and other trade fair offsets. Paris Luxury and Upper Upscale hotels anticipate the biggest ADR decline (-5.0%) among the 31 European markets following the 2024 Olympics and Paralympics. 

Asia Pacific short-term outlook:

Slower performance in 2023 has allowed for stronger KPI growth in 2024 for the 16 Asia Pacific forecast markets, with RevPAR expected to rise 6.9% this year. As in Europe, ADR (+3.8%) is the primary driver, although unlike European markets rate will continue to push RevPAR in 2025.

Price sensitivity appears in Asia Pacific as well, although for many markets that sensitivity has been realized in 2024, with expected improvement next year. Auckland has struggled most, with a 5.2% RevPAR decline penciled in for 2024 amid an economic downturn, challenging offsets caused by the 2023 FIFA Women’s World Cup, and record-high supply growth. Sanya has likewise suffered this year, with a nearly 16% decline in RevPAR forecasted as Chinese travelers increasingly choose international leisure destinations.

Year-over-year RevPAR growth is forecasted to be 4.9% in 2025, with next year set to be stronger than 2024 for most APAC markets. Just one market – Brisbane – is forecasted for lower RevPAR although the loss, a paltry 0.05%, will be caused by 5.3% supply growth as the market continues expanding. 

After a stellar 2024, Tokyo is expected to remain in the top half of Asia Pacific markets for RevPAR growth next year. EXPO 2025 in Osaka will indirectly contribute to the market’s continued success, as Tokyo remains a key gateway market to Japan in terms of air connectivity and will likely also benefit from displaced demand from Osaka.

Middle East short-term outlook:

RevPAR is forecasted to increase 3.7% for our four Middle East forecast markets in 2024, although unlike other world regions, growth is nearly equally balanced between occupancy and ADR. Extreme supply growth remains the crucial consideration for Saudi Arabian markets in both short- and long-term, as the Kingdom continues to push ahead with its ambitious Vision 2030 initiative. While aggregated RevPAR for the two markets will increase year over year in 2024, the longer-term outlook is much weaker as the markets absorb new rooms.

Conversely, supply growth has finally moderated in the United Arab Emirates, allowing for short- and longer-term RevPAR growth. After years on the back burner, Abu Dhabi is now the nation’s standout market, as limited new supply and rising popularity among corporate and leisure travelers have helped drive both demand and rates.

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.

RevPAR growth for 2026-28 remains pegged at a long-term annual average of roughly 2% across Europe and Asia Pacific markets. RevPAR growth will revert to its historic, rate-driven trend by 2027, while Asia Pacific markets will remain rate-driven through the entire forecast period. Long-term growth expectations for Middle East markets are slightly softer, at closer to 1.5% average annual RevPAR growth over the long-term. The influx of new supply into Saudi Arabian markets will limit occupancy growth over the long term.

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 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.

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.

New market assumptions:

Jeddah: Jeddah is a unique market within a unique country: The market, which is not a beach or resort destination, is cooler during summer and therefore strongest in demand during that period, with opposing seasonality to capital Riyadh.

Government demand is a key driver over the summer months, as many official activities migrate to Jeddah late spring and return to Riyadh in the fall. Over the past year, changes in government spending have had significant impact on demand and ADR growth trends.

Record-high levels of new supply have further limited performance growth, with more than 30% of the market demolished and now under redevelopment. The port drives business, but increasing competition with Riyadh remains a key concern for longer-term corporate travel.

One upside for Jeddah is the market’s historic role as the gateway to Makkah. When religious travel surges, the market benefits from international inbound religious tourism, mainly during Ramadan and Umrah. Jeddah is popular post-pilgrimage, with travelers staying a few days after returning from Makkah to enjoy the market’s attractions.

Riyadh: Saudi Arabia’s capital is rapidly growing in market size and sophistication. Leisure demand is a top priority for the market, and although most leisure demand is currently domestic, the market is looking to shift the balance to favor international inbound travel over coming years.

Corporate demand, the market’s historic bread and butter, continues to improve as Riyadh operates as a corporate gateway for Saudi. Consultants and business surrounding the giga-projects all run through Riyadh.

One consideration is the revenue management cycle for Riyadh, which historically has not been as advanced as other parts of the world. With significant growth in supply looming, however, hoteliers are becoming increasingly competitive on rate.

In the longer-term, opposing forces will push RevPAR, with branded pipeline and luxury hotels entering the market and driving rates, but the sheer volume of new rooms is likely to pressure rates. The deciding factor will likely be the pace at which new rooms enter – much at one time, or more slowed over time.

Brisbane: Brisbane is one of the hotter markets in Australia. With a temperate climate – temperatures hold around 20 degrees Celsius in winter – and major beach areas within driving distance both north and south of the city, Brisbane has shed its status as “big country town” and progressively grown into a popular city destination.

The climate makes the market an attractive region for relocation; it’s also a major resource hub for mining-dependent Queensland.

Government sponsored hotel development incentives in the early 2010s led to a big supply jump and higher quality properties, which has helped drive more consistent weekend leisure travel. Brisbane carries a decent corporate market as well, and a big casino development currently opening in stages has helped the market to rebound as well.

Supply is likely to slow more in the near future before ramping up again between 2027-29, and the 2032 Olympics might drive some supply growth as well. However, given the overall size of the regional hotel market and proximity to Gold Coast (20k rooms), Sunshine Coast (18k rooms) and ability to utilize cruise ships, the Olympics is unlikely to cause a major uptick in supply.

Sanya: Sanya is the only island resort destination in Mainland China and as such enjoyed massive popularity during the pandemic. Now that international outbound destinations are again possible, however, performance has dropped significantly YoY with travelers choosing to go abroad.

There is confidence for the future, as the pipeline is packed with brands trying to add their footprint to the island. However, the market itself is quite packed with supply already, leading to increased development in outer lying areas that further dilutes Sanya demand.

Business is back to normal, and moving forward, clients anticipate more reasonable YoY growth now that travelers have more choices of destinations. The government is likewise trying to attract more corporate travel, with a free trade zone area expected to bring factories and development.

The short term will remain challenging, but the longer-term outlook is more optimistic.

Additionally, Sanya is a good leisure travel barometer for China and a top destination domestically – it’s family-oriented and child-friendly. The Sanya Tourism Promotion Board is also active, helping to sustain the established market.

A recent supply decline in the market was caused by the closure of a 2.5k key hotel.

Lisbon: Leisure leads in Lisbon, with the market reporting its strongest occupancy and ADR over shoulder months (May, September, and October). Last year was particularly strong for leisure travel, particularly from the U.S. and Asia Pacific regions. As a result, the market reported double-digit ADR growth through Q3 2023 before moderating in Q4 and into 2024.

Longer-term, Lisbon hoteliers are looking to bring in more corporate demand and more events, especially in the hospitality industry. Short-term supply growth will help accommodate the new demand, with 2025 expected to have the strongest supply growth since 2016.

Global travel and tourism trends: 

Global inbound arrivals are anticipated to exceed pre-pandemic levels by 1.5% this year, marking the first year of global "recovery." Even with a moderate economic backdrop and elevated interest rates, consumers remain committed to prioritizing travel. The ECB's rate cut in June, along with the FED's subtle hint that it may lean toward lowering interest rates in September, indicates that income pressures will ease in the second half of the year, supporting continued discretionary spending on travel.

Europe is on track to surpass pre-pandemic levels in 2024. However, recovery in Eastern Europe continues to trail behind Western Europe, as the ongoing conflict in Ukraine hinders progress in the sub-region. Mediterranean destinations such as Spain, Portugal, and Albania achieved full recovery last year, and this momentum is expected to continue. North America has experienced a slight downgrade in forecast visitor arrivals this year, bringing it just below pre-pandemic levels, with the strong US dollar discouraging some travel to the U.S. In the Middle East, despite strong performance in Saudi Arabia, a weaker-than-expected H1 for Dubai and ongoing geopolitical tensions have led to a downgrade in the region's outlook. The Asia-Pacific region remains behind the global recovery pace, with weak outbound travel from China slowing progress, although Indian arrivals are currently driving short-term recovery in the region.

In the hope of seeing continued recovery across all regions globally, some factors have and will continue to play an important role. Major sporting events like the Euros and the Olympics served as significant tourism drivers in Europe during the summer of 2024, particularly boosting visitor numbers in the host nations - Germany and France. Additionally, Taylor Swift's Era’s tour, has had a massive impact everywhere it has been thus far, and will continue until year-end. It is expected to draw huge demand in remaining destinations across North America.

The increase in outbound travel demand from China must be catered for as it is key for the achievement of global tourism recovery. The restoration of air capacity and international routes from China has been slow but steady. This, along with retaining workers in the industry is vital for handling the rising demand for Visas and Passport renewals, allowing China to reconnect with the world.

Moreover, de-escalation between Israel and neighboring nations like Lebanon, Iran, and Palestine, is crucial for the region's tourism recovery as it would enhance safety, stability, and attractiveness for international travelers.

Finally, with the USA set to lower interest rates in September, the US Dollar is likely to weaken as a result. This depreciation will make travel to the United States more affordable for international visitors, potentially boosting tourism by enhancing the country's attractiveness as a travel destination.

Global macroeconomic trends:

We've revised our 2024 GDP growth forecast upward by 0.1 percentage points to 2.7% and lowered our 2025 estimate by the same margin, now also at 2.7%. Despite concerns about a potential US recession, we believe these fears are overstated and that recent data suggests a more orderly and benign slowdown in growth. In light of this, our adjustments to the global GDP growth projections have been minimal, reflecting a stable outlook for the world economy.

In the US, we’ve raised our forecast for GDP growth by 0.3ppts to 2.6% for 2024 and by 0.1ppt to 1.9% for 2025 as Q2 GDP growth and prospects for business spending was stronger than previously thought. Despite our belief that peak unemployment (of 4.3%) has yet to occur this year, this doesn’t indicate a reason for panic as the cause of this is that trend job growth won't be sufficient to absorb the increase in labour supply, which is being driven by strong immigration.

In China, we've kept our GDP forecast at 4.8% for 2024 and 4.1% for 2025. We still assume headwinds from sluggish consumer spending, rising tariff risk, and deflationary forces will likely more than offset stimulus tailwinds in the near term. Recent policy meetings suggested that the policy bias is towards more easing for the rest of the year amid growing signs that the domestic economy is decelerating quickly and past stimulus has not transmitted as effectively as hoped.

We've significantly cut our H2 2024 and H1 2025 Eurozone growth forecasts to reflect widespread signs that Eurozone growth momentum is faltering. While these revisions didn’t affect our Eurozone GDP growth forecast for 2024, which is unchanged at 0.8%, the downgrade is more visible next year. Growth has been uneven across countries and has extensively relied on net exports as domestic demand has remained subdued. At the country level, Germany was the main disappointment, whereas Spain continued to be the positive outlier.

Eurozone inflation came in stronger than expected in July, rising by 0.1ppt to 2.6% y/y. Core inflation was stable at 2.9% for a third consecutive month. As such, the debate about a September rate cut remains open. We continue to think the ECB will agree to a second 25bps cut in September.

In the UK, a CPI inflation rate of 2.2% y/y in July resulted in The MPC narrowly voting to cut Bank Rate by 25bps to 5% at its August meeting. However, many within the committee believe risks to inflation are skewed to the upside. Consequently, we think rate cuts at successive meetings are unlikely and expect Bank Rate to stay at 5% in September.