In the first quarter of 2024, budget hotels across the United States faced significant challenges as inflation-weary travellers cut back on spending. According to data from STR/CoStar, which tracks the hotel industry, more than half of the rooms at budget hotels remained vacant during this period, with occupancy rates falling to 48.7%. This 5% decline from the previous year has led to a 6.5% drop in revenue per available room, marking the largest decline among all hotel segments.
Budget hotels such as Econo Lodge, Days Inn, Super 8, and SureStay have been particularly hard hit. The vacancy rate of 51.3% in this segment indicates a significant downturn driven by a combination of reduced consumer spending and rising costs. The average room rate at these budget properties dropped 4% from a year ago, settling at $70 per night.
Midscale hotels, which include chains like Best Western, saw a 4.5% decline in revenue per room, while upper-midscale hotels like La Quinta experienced a 2% drop. In contrast, luxury hotels saw only a slight revenue decline of 0.3%, and upper upscale and upscale hotels even experienced modest increases of 3% and 0.4%, respectively. This disparity highlights the growing divide in the U.S. lodging industry, where higher-end hotels continue to perform well due to steady corporate travel and demand from affluent leisure travellers.
Rising costs across the board, including car insurance, repairs, rent, and transportation, have strained consumers’ budgets, leading many to forgo hotel stays. The American Hotel & Lodging Association conducted a survey in January, which revealed that 56% of consumers earning less than $50,000 per year cited inflation as a significant factor in their decision to reduce hotel stays over the next four months. In contrast, only 51% of those earning $100,000 or more expressed the same concern.
Despite the overall downturn, some budget hotels have managed to thrive, particularly in Sun Belt states. Infrastructure projects in these regions have helped to sustain demand for affordable accommodations, keeping some budget properties full. However, the broader trend remains concerning, as the decline in budget hotel performance reflects a larger issue of income inequality and economic pressures on lower-income consumers.
As inflation continues to weigh on consumer spending, budget hotels face a challenging landscape. While luxury and upscale hotels maintain their resilience, the budget segment’s struggles underscore the financial pressures facing many Americans. With rising costs and reduced travel, the road ahead for budget hotels will require careful navigation and potential adaptation to the changing economic environment.