The U.S. lodging industry is facing a challenging landscape, prompting questions about whether it is entering a “hotel recession.” Hospitality analysts are closely monitoring ongoing declines in revenue per available room (RevPAR), which have persisted for six consecutive months, even as the overall economy remains robust.
Jan Freitag
In a recent episode of “Tell Me More: A Hospitality Data Podcast,” Jan Freitag, the director of hospitality analytics at CoStar Group, described the current environment as “uncharted territory.” Alongside co-host Isaac Collazo from STR, Freitag evaluated the troubling performance in the hotel sector.
Freitag noted that two consecutive quarters of declining RevPAR could define a unique downturn for the hotel industry, despite the absence of a formal definition for a “hotel recession.” Preliminary data from CoStar indicates a 1.4% drop in RevPAR as of late September, suggesting the industry may be approaching that threshold.
According to forecasts from Oxford Economics, U.S. GDP is expected to grow by 1.9% in 2025, with a stable unemployment rate. However, Freitag characterized the sector’s current performance as “abnormal,” stating, “We’re not in a recession. Normally, if GDP grows, we would see room demand increase, but that’s not happening now.”
CoStar’s reports reveal year-to-date RevPAR growth through August at a mere 0.2%, marking the lowest levels recorded outside of recessionary periods and the pandemic year of 2020. The average daily rate growth is stagnating at 1%, trailing inflation for 23 of the past 36 months.
Freitag and Collazo emphasized that this is the longest period during which **average daily rates** (ADR) have remained below the rate of inflation since the Great Recession.
The K-Shape Economy: Disparities in Hotel Performance
While the overall sector faces challenges, not all hotel segments are equally affected. In August, luxury hotels experienced a positive RevPAR change of 3.5%, contrasting sharply with economy hotels, which reported a significant decline of 4.6%. Freitag attributed this disparity to a “K-shaped economy,” where higher-end establishments thrive while budget options struggle.
Geographical Impact on Revenue
The performance divide extends across geographical lines as well. The nation’s top 25 metropolitan markets have suffered the most, exhibiting a 3% decline in RevPAR in August—compared to a modest 0.4% growth in other U.S. markets. Factors such as declining international travel and weakened group demand have particularly impacted these key urban centers.
Freitag pointed out that cities such as Los Angeles, San Francisco, Seattle, New York, and Boston—traditional favorites for international travelers—are feeling the brunt of these challenges. “These markets attract leisure, business, and group travelers, making them vulnerable to various pressures,” Freitag noted.
Shifts in Consumer Preferences
In addition to these issues, perceptions of value are affecting hotel performance. Though U.S. hotel revenues have softened, short-term rentals are enjoying robust RevPAR growth, and cruise lines have reported strong demand for the upcoming years, pointing to a shift in consumer preferences towards options perceived as offering better value.
Freitag elaborated, “For hotels, you pay for the room, food, beverages, resort fees, and parking. Consumers are realizing that cruises offer an all-inclusive price.”
Moreover, travel for Americans going overseas has increased by 2.6% through August, despite a 10% decline in the dollar’s value. Many travelers are opting for high-end international destinations like Italy and Greece, drawn not only by the experience but also by competitive pricing.
Economic Uncertainty and the Future Outlook
Underlying these challenges is a pervasive sense of economic anxiety related to trade policies and tariffs. The ongoing government shutdown further complicates matters, delaying essential economic data releases that could help gauge the industry’s health.
Freitag pointed out that this instills hesitancy among consumers: “People are staying put; emotionally, they might decide to hold back on spending because they are uncertain about their financial future.” This psychological barrier could deter potential splurges and spending on travel.
As the U.S. lodging industry navigates these turbulent waters, stakeholders are left to consider the implications of this prolonged downturn. Whether temporary or indicative of more profound trends, the evolving landscape will require strategic adaptations from all actors in the hospitality sector.
