STR/TE Market Forecast Assumptions – February 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 relatively stable. Typical growth patterns have returned to all regions in 2024 as events resume their regular cadence and consumer confidence in travel increases.

While economic concerns across Europe have broadly eased, German markets expect another challenging year in 2024. Corporate weekday demand has been slow to rebound as lifestyle changes, such as remote work, persist post-pandemic. Meetings that were previously held in person are now frequently conducted over online platforms, even after travel restrictions were lifted, partly due to budgetary constraints within companies. Trade fairs, which traditionally drive demand in German markets, have also had reduced impact in recent years, partly attributable to the absence of Chinese visitors. Berlin, Frankfurt, and Munich have been most affected, with 2024-25 RevPAR downgraded by 2-8% across these three markets.

Conversely, Dublin’s outlook has improved as supply expectations have been revised down. The market continues to add to the events calendar, which will help continue to draw visitors in 2024. However, downside pressures in the form of new supply and a decrease in available humanitarian rooms, which contributed to compression nights in 2023, persist.

Twenty-four of the 30 European markets project year-over-year growth in average daily rate (ADR) in 2024, albeit at a more subdued, single-digit pace. Rome and Milan rate growth peaked in 2023, driven by strong transient American travel (Rome) and events (Milan). These markets anticipate year-over-year ADR declines in 2024 as source markets readjust and events offset. Munich is the only market with a significant rate downgrade due to fewer trade fairs, which are a primary drivers of rate growth, as well as a slow corporate recovery.

Asia Pacific demand expectations are virtually unchanged from the November 2023 forecast edition, with STR’s 14 APAC forecast markets anticipating 5.0% demand growth in 2024 (up from 4.9% in November 2023) and a 3.1% increase in 2025 (a 0.4-point improvement over the last edition). Growth expectations have normalized, with all 14 markets anticipating single-digit occupancy growth in 2024. Two markets, Chengdu and Mumbai, expect modest year-over-year occupancy declines, although actual occupancy levels remain ahead of long-term annual averages. For Chengdu, a reduction in domestic substitution will limit demand growth through Q3 2024. In Mumbai, high supply growth and modest demand growth over the slower summer and monsoon season will weigh on annual occupancy.

The region’s major concerns, airlift capacity and limited outbound travel from China, continue to steadily improve. While there are no expectations for a major “burst” of travel from China, outbound demand from the market is expected to continue growing, with the shorter-haul APAC markets expected to benefit first.

ADR growth expectations have been modestly improved, with a 4.6% increase year over year expected in 2024, up from 4.2% in the November forecast edition. As with demand, ADR growth will remain in single digits across all markets, with standouts Tokyo and Hong Kong driving the region at +7.5% and +6.2%, respectively. For the former, a rapid rebound in long-haul international inbound demand, which tends to be more highly rated and require longer length of stay, alongside labour shortages, have helped shift hoteliers into a rate-driven mindset. Hong Kong has benefited from a packed events calendar and rising demand from Mainland China.

Hotel performance in the Middle East continues to impress. Actual KPIs in Dubai are functionally unchanged from the November edition of the forecast, although growth levels have moderated modestly due to the outsized impact of COP28 in Q4 2023. While no major events are on the calendar for Q4 2024, upside potential is strong for the UAE’s largest market, given the regional propensity for last-minute events and its overall popularity as a global destination.

While Dubai performance expectations have stabilized, Abu Dhabi hotel performance over the past two quarters has experienced a renaissance of sorts, with pricing power, which has historically been extremely elastic, rising as the market continues to run a packed leisure and corporate events calendar. Abu Dhabi has also experienced an increase in popularity as a more budget-conscious destination than Dubai, and as a result, 2024 occupancy and ADR growth have nearly doubled relative to the November edition of the forecast.

Long-term outlook

Long-term demand expectations remain firmly anchored across the globe, with demand and RevPAR expected to rise annually across all three regions from 2024 through 2028. Long-term occupancy is largely unchanged, with less than one percentage point difference annually between 2024-27 for each region. ADR growth across Europe and the Middle East has likewise stabilized, with less than one percentage point variance in year-over-year ADR percent change for both regions in the long-term.

Asia Pacific market ADR growth expectations remain anchored, with minimal change in year-over-year growth trends and expectation for modest but continued ADR growth across all 14 markets through 2028. Actual ADR, however, has been significantly downgraded through 2027 due to growth in the Mainland China market sample (see note below for additional detail). Excluding Mainland China, only Singapore expects any softening in long-term ADR expectations, caused by currency appreciation and high cost of travel relative to adjacent markets in 2024.

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 beginning Q4 2023 and is expected to run through Q2 2024.

In the short- and long-term, this affects actualized market performance, most notably ADR, which has been lowered roughly 6% in both historic and forecast performance.

In the short-term, year-over-year changes may be affected as data is loaded on a rolling basis. If you do notice shifts in performance data for markets, provinces or hotel classes, rest assured these differences are likely sample-driven rather than performance-driven.

Once the full historic range of performance is added by end of Q2, 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 most recent forecast sees global international arrivals for 2024 on par with 2019 levels, indicating recovery to pre-pandemic levels. This reflects the same forecast or a slight improvement for all regions since our previous update, apart from APAC – for which we have downgraded international visitor arrivals in 2024 in relation to 2019. For most regions, travel recovery will continue in 2024 despite a slower economic backdrop.

Many countries that were previously expected to endure a recession are now likely to avoid this, but economic growth is likely to slow. Higher costs stemming from inflation, staff shortages and fuel prices have translated to higher travel prices for consumers. Combined with a weaker economic backdrop this will limit travel demand, especially in Advanced Economies. However, consumers have demonstrated some tolerance towards higher prices and travel remains a priority.

Following the reopening of travel in Asia, international visitor arrivals in APAC didn’t quite reach the levels originally anticipated in H2 2023, resulting in a slight downgrade for 2024 in our last update compared to our Autumn release. However, we still expect APAC recovery to gain momentum in 2024 in comparison to 2023. Asia travel restrictions were lifted much later than other regions, meaning current demand levels are further behind other regions. Consequently, a more robust recovery pace is anticipated in 2024, whereas most regions are edging closer to 'normal' growth trends. With the easing of capacity constraints in China, due to restored transport linkages, easier visa processes and improved perceptions of safety surrounding Chinese travel decisions, we forecast outbound trips from China to reach 21% below 2019 levels. This initial recovery will favor MEA and APAC. The Middle East & Africa will see the quickest recovery in arrivals from China among global regions, with Chinese visits to MEA to almost reach 2019 volumes in 2024. Chinese arrivals to APAC destinations (which receive the bulk of Chinese outbound visitors) are expected to recover to around 18% below 2019 volumes over 2024.

2024 is a year in which there are multiple major events scheduled to take place – especially during the summer months. These include the Olympics in Paris, UEFA Championship in Germany and the T20 Cricket World Cup in US & Caribbean. Due to an influx of international visitor arrivals, events bring a range of positive impacts including destination promotion and revenue uplift. The host nations of these 3 events are Germany, France, and the Caribbean. We anticipate each will recover beyond 2019 levels with regards to inbound visitor arrivals in 2024. In reflection of this, inbound visitor spend will recovery beyond 2019 levels by 32% (Caribbean), 12% (Germany) and 20% (France), respectively.

Global macroeconomic trends

We have nudged up our World GDP growth forecast for 2024 by 0.1ppt to 2.4% and left our 2025 growth forecast unchanged at 2.6%. This would be consistent with a soft economic landing for the global economy, which is no mean feat after the aggressive policy rate hikes in 2022 and 2023. However, it still would represent weak growth even by the standards of the 2010s.

The outlook for the US economy continues to turn a little rosier because of the strength of the labor market, easing financial market conditions, solid household and nonfinancial corporate balance sheets, and disinflation. We've raised our forecast for real GDP growth in 2024 by 0.3ppts to 2.3%. The February baseline forecast also included a lower peak in the unemployment rate and stronger consumer spending.

In regards to China, we continue to forecast GDP will grow by 4.4% this year. Investor sentiment on China turned sharply negative at the start of this year, prompting a series of monetary stimulus and unconventional policy support. Reportedly, authorities are also considering aggressively buying up shares to shore up domestic stock markets.

We think conventional policy easing, such as monetary easing and infrastructure support, appears to be fully priced into consensus expectations, resulting in little upside potential to sentiment as policymakers continue their rhetoric of careful stimulus. We expect policy easing will contribute a meaningful 1.1ppts to China’s 4.4% growth this year.

Eurozone

While the bloc narrowly avoided a recession in winter, GDP was nearly stagnant over the past year. Initial data for January suggest an imminent improvement is not likely, so we continue to forecast GDP growth of 0.6% this year. We have marginally raised our average inflation forecast for this year to 1.9% to reflect the impact of the Red Sea crisis on prices.

Eurozone GDP was flat in Q4 2023, marginally better than our estimate. The Q4 GDP figures show some variation across countries. Germany was the worst performer among the largest countries and Spain was the best. Italy and France were somewhere in the middle. In terms of ongoing momentum, we do not yet have any hard data for this year, but despite earlier signs of bottoming out, the available surveys for January have been generally disappointing, showing little signs of revival. We therefore expect Q1 will be another quarter of weak growth and think activity will start to improve more in H2.

Looking closer at the UK, we expect a sharp fall in UK inflation will support real incomes and drive a recovery in activity this year. But the pace of the pickup will be limited by the lagged impact of tighter monetary policy and by tight fiscal policy settings. We forecast GDP will grow by 0.6% in 2024 and 1.6% in 2025, unchanged from last month.