What's Happening?
The U.S. lodging industry has seen a modest increase in demand, averaging 0.7% annually in 2023 and 2024, following a period of rapid growth post-pandemic. CBRE's Hotel Horizons report forecasts a slight increase in demand growth to 0.9% for 2025. Despite this slow growth, franchise-related fees have risen significantly, driven by guest loyalty program costs and reservation/marketing assessments. Luxury and upper-upscale hotels have experienced the greatest fee increases, correlating with higher revenue growth in these segments.
Why It's Important?
The rise in franchise fees amidst slow demand growth highlights the increasing financial burden on hotel owners and operators. As franchise fees are often tied to revenue, the disproportionate growth in fees compared to demand may strain profitability, particularly for midscale and economy hotels. This trend underscores the importance of guest loyalty programs and brand reservation systems in driving revenue, potentially influencing hotel management strategies and franchise relationships. The industry may see shifts in brand affiliations and operational adjustments as owners seek to optimize costs and enhance guest experiences.
Beyond the Headlines
The disparity in fee growth between luxury and midscale hotels reflects broader industry dynamics, including consolidation and strategic acquisitions by major franchise companies. The emphasis on guest loyalty programs suggests a shift towards personalized and brand-driven experiences, potentially impacting consumer preferences and competitive positioning. As franchise companies expand their portfolios, the balance between brand-managed and third-party managed properties may evolve, influencing market dynamics and investment decisions.
