Hotels Rode A Business Travel Wave — Now Comes The Undertow

Hospitality leaders touted a strong rebound in business travel during the fourth quarter, fueled by companies getting more of their executives back on the road.

But the optimism may have been premature. Rising costs, inflation and looming tariff threats are clouding the outlook for 2025, with business fundamentals looking far less stable than they did just months ago.

Early in earnings season, hotel REITs and top brands painted a picture of resilience, celebrating business travel as a bright spot even as leisure demand showed signs of softening. Yet by late February, caution had crept into investor calls, with fresh data and shifting economic signals suggesting the industry could be heading for a more turbulent year ahead.

“While we were quite optimistic just a month ago due to the overall optimism expressed by businesses and much of the public following the election, some of that enthusiasm seems to be waning as concerns increase about extensive talk of tariffs, government firings, mass deportations, and significant reductions in federal spending, including many spending freezes already put into place," Pebblebrook Hotel Trust President and CEO Jon Bortz said on its earnings call late last week.

Bortz said Pebblebrook is “increasingly cautious” about the potential for negative economic blows ahead, particularly given the fallout from the Los Angeles wildfires, where it owns multiple hotels across the metro. 

Though demand grew 2.2% during the fourth quarter, in line with GDP growth, Bortz said wildfires could be a drag this year.

“While other parts of the vast LA market have benefited from evacuees, first responders and early cleanup efforts, our West LA submarkets, which are higher-priced, have not,” he said. “That said, we believe significant new demand will emerge as extensive rebuilding commences over the next few years.”

Pebblebrook and others highlighted renewed business demand even as leisure travel softened somewhat in Q4.

At Hilton Worldwide, U.S. revenue per available room — a key metric in the hospitality industry — was up 2.9%, driven by strong leisure demand and continued improvement across the business and group segments, company executives said on its earnings call in February.

Hilton CEO Christopher Nassetta said on the call that the company expects continued recovery in business travel, driven by further momentum from large corporations and coupled with steady demand across small- and medium-sized businesses.

“If you talk to large, medium, small [businesses] almost without exception, people are broadly saying that they're going to travel more,” Nassetta said. “They broadly understand that they're going to pay more for their travel because they understand the environment they're living in. And so, I do think that bodes well for business transient recovery.” 

Nassetta said trends follow a cycle of people getting back to the office and becoming more “serious about running their businesses.” Though demand still lags prepandemic peaks, rate structures have increased.

By the end of 2025, Nassetta said there’s a “pretty good shot” of being able to reach previous levels of business demand seen before the pandemic. 

Marriott International Chief Financial Officer Leeny Oberg said on the company’s February 11 earnings call that business travel has already recovered to 2019 levels — just in a different form. Small and medium-sized businesses came back faster than the largest corporations, she said.

RevPAR for Marriot’s business sector was up 3% globally in the fourth quarter and up 4% in the U.S. and Canada. Business travel contributed 33% of Marriot’s global room nights in the fourth quarter.

“When you think about the large companies that have had more remote work since Covid …  you still see their nights being behind 2019 levels,” Oberg said on the call. “I will say that some other of those large corporates, like in the financing sector of the economy, they are actually back to more than recovered, so overall the business has recovered.“

Hyatt President and CEO Mark Hoplamazian said on the company’s Q4 earnings call that business travelers remain its strongest growth segment, delivering revenue growth of 10% in the quarter. The company continues to see its large corporate customers back on the road, he said.

Overall, business travel revenue for Hyatt was up 12% for the year, which benefited major U.S. urban markets like New York, Seattle and Washington, D.C., Hoplamazian said.

Business travel benefited from some favorable calendar changes in the quarter and better-than-expected performance following the election, said Michael Bellisario, senior hotel research analyst and director at Baird.

Because people aren’t in the office as frequently on Mondays and Fridays, there are fewer days for businesses to travel, and they pay higher prices to stay in hotels in the midweek, he said. 

“Business travel is good, it stepped up in the fourth quarter,” Bellisario said. “I would say the step up in growth in the fourth quarter is not what the underlying run rate is for business travel, it’s a little below that. Some of the excess growth is because of the calendar shifts, but it's generally still pretty healthy.” 

But the overall outlook for the industry in the year to come is less positive.

Expenses are growing faster than profits for many hospitality companies, and a high-rate environment coupled with increased construction costs as a result of tariffs could constrain new development, Bellisario said. 

Bellisario said this may lead to fewer starts and new openings. Companies’ guidance for RevPAR expectations, while positive, are lower than projected costs, he said. 

“The fundamental outlook is pretty rough,” Bellisario said. “Profits are not growing, or they're not growing materially.”

Lodging REITS are down about 5% since the start of January, according to the FTSE Nareit All Equity REITs Index. Meanwhile, an STR report indicates the country’s ADR and RevPAR growth rate was its lowest since 2020, although it had plenty of room to make up for since the depths of the pandemic.

Chris Nixon, executive vice president and head of asset management for Ashford Hospitality Trust, said the company is starting to see the broader market soften a little bit in occupancy, but that performance at its hotels has outperformed the market. 

Chatham Lodging Trust President and CEO Jeff Fisher said on the company’s Q4 earnings call Feb. 27 that labor and benefit costs are moderating at low-to-single-digit levels. This is different from competitors that are facing more pressure given their presence in larger markets with reliance on union labor, he said. 

Fisher said that during heavy leisure months in the summer, its RevPAR growth was about 1%. That reflects softening leisure travel, which he said was offset by the “higher and healthier business travel” during those months.

“Whether leisure has bottomed out or is bottoming out kind of as an industry, I think it’s too early to tell,” Fisher said.