U.S. lodging demand elevated at a mean annual price of simply .7 p.c in 2023 and 2024, after two years of double-digit development popping out of the pandemic in 2020. Within the Could 2025 version of Lodge Horizons, CBRE decreased its forecast for lodging demand development in 2025 to .9 p.c. With lodging demand rising at lower than 1 p.c, lodge homeowners and operators are scrutinizing the worth of their franchise relationship since it’s the main stimulus of demand for many U.S. lodges.
Lodge homeowners pay a number of charges to the franchise firm to offer a wide range of companies, together with know-how, income administration, coaching, and high quality assurance. CBRE’s Tendencies within the Lodge Business survey captures three further franchise-related charges on a discrete foundation that relate on to the technology of demand and income for a lodge:
- Royalty funds
- Advertising and marketing assessments and reservation charges
- Visitor loyalty program charges
For this evaluation, the sum of those three parts contains “whole franchise-related charges.” CBRE analyzed the funds made by 4,200 U.S. lodges in 2023 and 2024 to offer homeowners and operators with data on current developments in the price of these three franchise-related charges. In 2024, these 4,200 lodges averaged 218 rooms in measurement and achieved 70.2 p.c occupancy with a $214.89 common every day price.
2024 Annual Modifications
From 2023 to 2024, the lodges in our pattern averaged a room’s income acquire of two.7 p.c, whereas whole working income elevated by 3 p.c. Concurrently, whole franchise-related charges elevated by 3.5 p.c. Since franchise charges are steadily charged as a share of income, these relative development charges concern franchisees.
Driving the outsized improve in franchise-related charges had been the visitor loyalty program prices (3.9 p.c) and reservation/advertising assessments (3.8 p.c). Since a portion of those charges relies on the income generated by loyalty program visitors and reservations made by way of the franchise system, it may be inferred that each the model reservation and visitor loyalty packages drove extra income in 2024 than they did in 2023. This additionally signifies a normal improve in visitor loyal vacationers, which correlates with the persevering with consolidation within the business as the key franchise corporations improve their portfolio of manufacturers with strategic acquisitions. The royalty price, which not directly generates demand, elevated by simply 2.7 p.c through the yr.
It isn’t shocking that the best will increase in franchise charges had been noticed inside the higher-priced chain scales, given the correlation between modifications in income and modifications in franchise-related charges. In 2024, lodges that operated within the luxurious, upper-upscale, and upscale chain scale classes loved the best will increase in income, whereas properties within the upper-midscale, midscale, and financial system classes noticed their income decline or improve lower than .5 p.c. Accordingly, franchise price development was biggest at luxurious (6.4 p.c) and upper-upscale (5 p.c) properties. It’s also price noting that lots of the upper-upscale and luxurious manufacturers additionally acquire charges on meals and beverage revenues, which have skilled will increase exceeding room income.
In 2024, franchise funds declined for the midscale lodges (-6.6 p.c) in our pattern. Additional investigation revealed {that a} decline in demand for the midscale lodges probably contributed to the decline in reservations and the related reservation charges.
Whereas franchise price development was biggest inside the two highest-priced chain scales, whole franchise charges as a share of whole working income are biggest within the mid-priced (upscale and upper-midscale) class. Mid-priced lodges have decrease ranges of income in comparison with the upper-priced segments, which considerably influences the upper franchise price ratio. In comparison with lower-priced lodges (midscale, financial system), mid-priced properties profit extra from visitor loyalty packages and subsequently pay extra in visitor loyalty program charges.
Model vs. Third-Get together Managed
We now have analyzed franchise-related price developments by brand-managed lodges vs. these which might be managed by a third-party (or self) operator, as manufacturers generally function a lodge on behalf of an proprietor. In 2024, the modifications in income and franchise-related charges had been better on the brand-managed lodges in our pattern.
Usually, manufacturers are inclined to handle the luxurious and upper-upscale lodges inside their portfolio, and the higher-priced lodges obtain better good points in income and even better development in franchise-related charges. This brand-managed orientation towards higher-priced lodges additionally ends in decrease ratios to income in comparison with third-party managed properties, that are extra steadily discovered within the mid- and lower-priced chain scales.
Composition of Franchise Charges
For your complete pattern, the distribution of the franchise-related charges is evenly cut up among the many three parts, however variations are noticed when segmenting the pattern.
By chain scale, there’s a linear relationship between worth and the illustration of visitor loyalty funds, which make up over 33 p.c of the overall franchise-related funds made by luxurious and upper-upscale lodges. Conversely, visitor loyalty program expenses are lowest at lower-priced lodges, the place they common lower than 13 p.c of whole franchise-related charges. That is in step with the business expectation that the upper-priced chain scales are inclined to garner better visitor loyalty. Because the franchise corporations are including extra manufacturers to their portfolio, we count on to see continued outsized development in visitor loyalty charges.
At brand-managed lodges, we be aware that the royalty charges averaged simply 15 p.c of whole franchise-related charges in 2024. For third-party managed properties, this ratio was 49.8 p.c, reflecting that franchise corporations will make concessions on the royalty charges to realize the administration contract. That is to say a brand-managed property essentially supplies inherent financial savings to an proprietor, however that, relying on market and branding, the flow-through to the underside line from a third-party supervisor with a regular franchise settlement could be better than brand-managed, regardless of the better franchise charges. As in all instances with the business, the most effective administration is extremely variable and market dependent.
Comfortable vs. Core Manufacturers
Roughly 4 p.c of our pattern was affiliated with a smooth model, which typically supplies the advantages of the reservation methods, advertising initiatives, and visitor loyalty packages of core manufacturers, however permits better flexibility relating to services, companies, and working requirements.
Comfortable-brand lodges pay the identical three franchise-related charges charged to the core-brand properties. Compared to the core-branded lodges in our pattern, the cut up between the three franchise-related price parts was nearly similar. Nonetheless, from 2023 to 2024, revenues and franchise-related charges elevated at a better tempo on the soft-brand lodges in our pattern in comparison with the core-brand properties. These two metrics point out that almost all soft-brand lodges function within the upper-priced chain scale and are usually operated by third-party administration corporations.
One other possible rationalization for the better rise in franchise charges on the soft-branded properties is a rise in F&B-related charges. Comfortable-branded lodges are inclined to have a really pushed F&B idea, which weighs into the general income share. For franchises that cost an F&B price, this potential influence is inflicting some better development in franchise charges.
