What's Happening?
Lodging Analytics Research & Consulting (LARC) has released its 2Q-2025 Hotel Industry Outlook, highlighting a decline in U.S. RevPAR by 0.5% in the second quarter. This decline is attributed to a 1.7% drop in occupancy and a modest 0.4% growth in ADR. The report notes a significant decrease in job growth since May 2025, excluding the healthcare sector, with a total employment decline of 94,200 jobs between May and July. The report also points to a 4% decrease in inbound international travelers year-to-date through July, influenced by policy changes from the current presidential administration, including tariffs and border control measures. Canadian travel to the U.S. has notably decreased by over 7%, equating to nearly 500,000 fewer visitors.
Why It's Important?
The decline in RevPAR and job growth signals potential challenges for the U.S. hotel industry, which may face further pressure from economic uncertainties and policy shifts. The decrease in international travel, particularly from Canada, could impact hotel performance, especially in gateway markets. The report suggests that technological advancements, such as artificial intelligence, may allow companies to operate more efficiently, potentially reducing the need for hiring. This could lead to fewer people with the means to travel, affecting leisure demand. The report also highlights the potential for recession, with a 49% probability estimated by Moody's Analytics, which could further impact the industry.
What's Next?
LARC anticipates a reversal of the current trend in 2026, with the U.S. hosting the World Cup, which could boost RevPAR by nearly 2% through ADR growth. The report forecasts a decrease in RevPAR by 0.7% in 2025, followed by a 0.9% increase in 2026. The Fed is expected to cut the target Fed Funds Rate by 25 basis points per quarter starting in September, which may influence economic growth and hotel industry performance. Additionally, expense pressures, including wage growth and political risks like the Safe Hotels Act, could shape market performance and investment decisions.
Beyond the Headlines
The report suggests that markets with high-end leisure transient and group exposure may outperform others in the long term. However, immediate growth is expected in markets with strong convention calendars and World Cup exposure. Wage and expense growth, driven by collective bargaining agreements and political initiatives, could significantly impact hotel margins and value changes. The report emphasizes the importance of transparency in forecasting to navigate the current environment and position for success.
