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CBRE Releases 2024 Global Hotels Outlook
Sector-Specific Tailwinds Should Offset Broader Economic Challenges
Executive Summary U.S.
After RevPAR rose to a record high in 2023, CBRE expects the U.S. to see another year of improvement in 2024. RevPAR growth is forecast to reach about 3% year-over-year, driven by the ongoing recovery in inbound international travel; strong performance in the meetings and group events segment; and continued demand from leisure travelers. Urban locations with leisure appeal and higher-priced hotels should outperform, but traditional hotel demand and pricing will likely be tempered by competition from alternative sources like cruise lines, short-term rentals, and glamping.
Caribbean
The Caribbean has made a remarkable recovery over the last 24-36 months and appears poised for continued growth, backed by a continued influx of tourists from the U.S. and limited new supply. While some risks remain, particularly the impact of climate change and hurricanes, the region's resilience during the pandemic should provide a foundation for continued strong performance over the course of 2024 and beyond.
Mexico
The Mexican Ministry of Tourism estimates that in 2024, international tourist arrivals to the country could increase by up to 5.4% and foreign expenditures by up to 0.3% compared to 2023. Beach resorts, such as the Riviera Maya, Los Cabos, and Cancun, can expect to see above-average hotel occupancy in 2024, supported by new developments and even with the completion of new hotel rooms this year.
Europe
Europe's hotel and tourism sector is poised to gain further momentum in 2024, with domestic and short-haul leisure travel remaining the primary drivers of hotel demand. Additional tailwinds will come from a rise in international long-haul leisure travel from Asia. However, following strong growth in RevPAR fueled by inflation and surging demand in 2023, momentum is likely to decelerate to a high single-digit rate, indicating a return to more normalized levels of demand growth.
Asia Pacific
Although airline capacity in Asia Pacific is yet to fully recover to pre-pandemic levels, CBRE forecasts that total international tourism arrivals should reach 2019 levels by the end of this year. While ADRs are expected to normalize in most markets, occupancy growth in well-managed assets should drive revenue growth. Operators that demonstrate flexibility and capitalize on the upswing in tourism will be the main beneficiaries, particularly those in North Asian markets, such as Japan and Korea.
2024 U.S. Outlook
RevPAR was up 3.2% year-over-year in 2023, boosted by a 2.7% year-over-year increase in ADR and a 0.5% year-over-year increase in occupancy. Most of the growth in RevPAR occurred in H1 2023. While early leaders coming out of the pandemic, such as economy and midscale hotels, reported slower growth, luxury hotels, which had been lagging, posted strong RevPAR growth of 4.6% year-over-year.
CBRE expects another year of improved performance in 2024. RevPAR growth is forecasted to reach about 3% year-over-year, driven by the ongoing recovery in inbound international travel; the strong performance in the meetings and group events segment; and continued demand from leisure travelers. However, growth may be tempered by rising demand for alternative lodging sources such as cruises and short-term rentals. The trend of higher-end hotel outperformance will continue in 2024, with luxury and upper-upscale RevPAR expected to increase by 3.8% year-over-year and 3.7% year-over-year, respectively.
Urban locations will show the strongest growth in RevPAR in 2024, fueled by the continued recovery of inbound international travel; sustained strength in the groups segment; and modest improvement in traditional corporate travel. The recovery in international visitors could also provide a meaningful boost, lifting occupancy by as much as 1.1 percentage points year-over-year, bringing levels within striking distance of all-time highs.
Gross operating profit (GOP) margins declined most of the year except for Q1 2023, which benefited from easy comparisons when the Omicron variant constrained demand. As of the end of December 2023, margins had declined by 125 basis points (bps) over the year, ending the period 256 bps below 2019 levels on an aggregate basis. CBRE expects margins to remain under pressure as cost increases will outpace RevPAR growth amid a renewed focus on brand standards; the tight labor market; and strong wage growth. Below the GOP line, higher insurance and property taxes will pose a greater burden on operational expenditure, while increasing construction costs will impact cash flows.
RevPAR for several U.S. hotel markets ended the year well above 2019's levels. These included New York City, where the city's strong leisure and global appeal along with Airbnb restrictions pushed up room rates to record highs; and San Diego, where a healthy mix of group business, leisure travel, and government demand continue to make the city a post-Covid top performer. Laggards include some markets in California, the Pacific Northwest or the Upper Midwest, where net migration outflows, rising crime and political issues have created tension, meaning it could take several more years for RevPAR to recover.
CBRE forecasts short-term interest rates to decline by 100 bps in 2024, which should support higher hotel investment volumes. Trophy assets and boutique hotels in supply-constrained differentiated locations will continue to offer attractive opportunities this year. Group hotels with leisure appeal and newly renovated premium select-service hotels associated with globally recognized brand families in strong demand markets will also be keenly sought after.
2024 Caribbean Outlook
Despite the devastating impact of COVID-19 on the Caribbean, which is heavily reliant on tourism, the region has made a remarkable recovery over the last 24-36 months and now appears to be on its best ever footing.
The rollout of COVID-19 vaccines and substantial government subsidies in the U.S., combined with a pent-up desire to travel, fueled an influx of tourists to the region in late 2021 and 2022. While some level of stabilization was expected in 2023, particularly with the resumption of cruises and the reopening of European tourism markets, the Caribbean managed to grow its share of overall travelers' spending. CBRE's analysis of a sample of the region's largest markets shows all posted strong visitor arrival gains over the prior year, with a majority easily surpassing pre-COVID volumes.
Puerto Rico and Punta Cana, among the region's most active airports, posted visitor arrival increases of 18.3% year-over-year and 13.4% year-over-year in 2023, respectively, marking a significant improvement from 2019 levels. Aruba and Jamaica, two destinations in which U.S. tourists account for most arrivals, both posted increases of more than 10%, ending 2023 well ahead of pre-pandemic patterns.
Factors fueling growth in visitor arrivals include U.S. households' changing lifestyles and priorities, which are pushing travel and experiences up their agenda. The pandemic showed many Americans how convenient the Caribbean is for a vacation from the U.S., while the adoption of flexible work-from-home policies translated into longer stays. Many tourists are also discovering the value of the All-Inclusive model compared to the typical European Plan which allows guests to enjoy their hotel stay without the unwanted surprise of additional charges upon checkout.
Limited new supply bodes well for the Caribbean hotel sector from an investment standpoint. Except for the Dominican Republic (Punta Cana), which saw the addition of just under 1,800 new rooms to inventory, representing about 2% of total supply, the completion of new hotels across the region was limited in 2023. While the pipeline of new developments and the pace of construction is solid, it continues to lag growth in visitors. In larger markets, local financing is becoming a credible alternative to borrowing in the U.S., thanks to major government incentive programs.
While some risks remain, particularly the impact of climate change and hurricanes, which have pushed up insurance rates, the region's resilience during the COVID-19 pandemic should provide a foundation for continued strong performance over the course of 2024 and beyond.
Figure 1: Americas Hotel Performance and Key Macroeconomic Indicators as a % of 2019
Source: STR, Kalibri Labs, CBRE Hotels Research, Oxford Economics, IATA.
2024 Mexican Outlook
The hotel segment in Mexico continued to recover during 2023. From January to November, slightly over 37.5 million international tourist arrivals were recorded to the country, representing a 10.3% increase above the same period of 2022 and just 6.8% below pre-pandemic levels.
Improvements to aviation infrastructure and the addition of more flights boosted international tourist arrivals through this channel to just over 20.3 million as of November 2023, 15.6% higher than the same period of 2019. In terms of tourism revenue, US$27.4 billion was generated in the year to November 2023, a figure 24% higher than the same period in 2019. The Mexico Ministry of Tourism estimates that by 2024, international tourist arrivals to the country could increase by up to 5.4% year-over-year, while revenue could rise by up to 0.3% compared to 2023.
Hotel occupancy in the 70 tourist destinations covered by DataTur reached 59.6% as of November 2023, a figure 80 bps below the same period of 2019. The Ministry of Tourism expects occupancy to stay at roughly the same level in 2024. Beach resorts such as the Riviera Maya, Los Cabos, and Cancun are expected to see continued hotel occupancy at above-average rates, driven by the development of new hotel projects and the completion of new hotel rooms scheduled for 2024.
Figure 2: Mexican Hotel Performance and Key Macroeconomic Indicators as a % of 2019
Source: CBRE Mexico Research 2023, Research with data from Oxford Economics, National System of Statistical Information of the Tourism Sector of Mexico and
Banxico. 2024 European Outlook
Europe's hotel and tourism sector is poised to gain further momentum in 2024, with domestic and short-haul leisure travel remaining as the primary drivers of hotel demand. Additional tailwinds will be provided by a rise in international long-haul leisure travel from Asia, supported by the addition of more long-haul flights, which should support solid growth in the volume of long-haul inbound travelers.
Business travel, particularly the international long-haul segment, is expected to show meaningful year-over-year improvement. However, this category will lag the leisure segment due to the slow return to the office in some markets and the growing prevalence of virtual meetings.
Several major upcoming sporting and entertainment events should help certain hotel operators increase room rates and raise occupancy. These include the 2024 Summer Olympics in Paris and the 2024 UEFA European Football Championship in Germany, as well as major concert tours by Coldplay and Taylor Swift.
The wars in Ukraine and the Middle East may cause some travelers to shift their travel plans to northern and western Europe, as was seen during prior periods of military action. As these are generally higher ADR markets, this shift could be another catalyst for occupancy growth and rate compression during peak periods.
After strong growth in RevPAR fueled by inflation and surging demand in 2023, momentum is likely to moderate. CBRE expects RevPAR growth in 2024 to decelerate to a high single-digit rate, indicating a return to more normalized levels of demand growth.
Hotel operators' ability to adapt quickly to changing market conditions during the pandemic has led to improved operational efficiency, ensuring they are well positioned to maintain profitability in the face of potentially challenging economic conditions. However, simultaneous increases in utility costs and ongoing wage growth require operators to adopt a proactive approach to revenue management and implement rigorous cost-control measures.
The luxury and resort segments are expected to outperform other categories in 2024 due to strong wealth creation and high-income groups' growing preference for personalized experiences. These drivers are less vulnerable to macroeconomic headwinds, further solidifying the positive outlook for these segments.
From 2009 to 2023, overall European hotel supply grew at a compound annual growth rate (CAGR) of 1.4%. Starting this year, supply growth is expected to moderate to a CAGR of just 1%, well below the estimated 3% year-over-year rise in visitor arrivals. This will provide a solid foundation for future RevPAR gains.
The UK and Germany are at the forefront of European hotel developments, collectively accounting for over a third of the total hotel pipeline from 2024 to 2028. These markets will therefore experience relatively higher growth in the number of hotel rooms.
France, Spain and Italy will see a more favorable supply and demand balance, with relatively limited new hotel development and increased international inbound visitors in 2024 and beyond. These trends underscore the potential for further gains in RevPAR and operating income in these markets and reaffirms their status as attractive investment targets.
Average hotel occupancy in Europe rose to 69% as of end-December 2023, signaling a general recovery in occupancy across key markets. Nevertheless, this figure remains about 500 bps below 2019 levels. While the uptick in occupancy has been noteworthy, it will have only a moderate impact on hotel revenue growth in 2024.
After significant interest rate increases negatively impacted hotel investment volume across most European markets in 2023, hotel transactions are expected to gradually pick up in 2024. Investment activity is likely to be backloaded in the second half of the year after investors obtain clearer insight into interest rate movements.
Improving operating fundamentals will boost confidence among some hotel owners, making them reluctant to lower asking prices. This will set hotels apart from other commercial real estate sectors that have undergone substantial repricing. At the same time, investors are expected to maintain a more patient yet active stance, guided by the expectation that easing inflation will eventually lead to lower financing costs.
The enduring strength in leisure demand and increased preference for personalized experiences will continue to direct buyers to hotels in popular tourism and resort destinations. We expect institutional funds and private investors to strategically allocate capital towards premium hotels in key leisure and tourism locations across Spain, Portugal, and Italy over the course of 2024.
We also expect opportunistic investors to eye European hotel properties that have the potential for operational improvements. The introduction of stricter ESG policies and regulations for hotels will also prompt more retrofitting to ensure properties meet higher sustainability standards.
Figure 3: European Hotel Performance and Key Macroeconomic Indicators as a % of 2019
Source: STR, Oxford Economics, IATA.
2024 Asia Pacific Outlook
According to the Official Airline Guide (OAG), total available aircraft seats in Asia Pacific in 2023 remained below 2019 levels due to airlines' inability to bring back staff and a shortage of aircraft for domestic and international flights. As of December 2023, most major markets, except for mainland China, were operating at a 10-15% deficit in available international aircraft seats.
Despite this, according to International Air Transport Association (IATA), Asia Pacific airlines posted a 126.1% rise in full-year international 2023 traffic compared to 2022, maintaining the strongest year-over-year rate among the regions. Capacity rose 101.8%, and the load factor climbed 9.0 percentage points to 83.1%. December 2023 traffic rose 56.9% compared to December 2022.
Although further growth in international travel is expected in 2024, the challenging global economic environment could impede the recovery. Concerns include persistently high inflation, which is raising transport and accommodation costs for tourists, and slower economic growth, which typically correlates with fewer international departures. This means that markets that are dependent on international departures will likely lose momentum over the next six months.
Air passenger forecasts in the region nevertheless remain positive. According to the IATA's December 2023 forecast, passenger throughflow for airports in Asia Pacific is set to surpass 2019 levels during 2024. Growth in air passengers in Asia Pacific is expected to eclipse that in Europe and North America.
A rise in international arrivals from key markets, particularly Japan and mainland China, pushed up Asia Pacific hotel room rates in 2023.
After experiencing demand-driven growth in 2022 as borders re-opened, ADR growth in 2023 was driven by hotel owners' need to offset rising operational costs alongside operators' preference to drive ADR to mitigate inflation.
Demand-based pricing has allowed operators to use ADR to offset rising inflation across the region.
This flexibility in ADR change can also be attributed to the increased market share of individual business and leisure or transient travelers which are more subject to changes in the daily rate than corporate group stays.
While ADR is expected to normalize in most markets, occupancy growth in well-managed assets should drive revenue growth in 2024. Hotel operators in North Asia markets, such as Japan and Korea, are particularly well positioned to benefit. While ADRs in Hong Kong SAR have recovered to pre-pandemic levels, occupancy continues to lag as non-mainland Chinese visitors have yet to return to the city in significant numbers.
Figure 4: Asia Pacific Hotel Performance and Key Macroeconomic Indicators as a % of 2019
Source: STR, Oxford Economics, IATA.