NEW YORK, NY – Low-end hotels in the United States are facing a significant downturn, consistently underperforming the broader lodging industry for the past three years, according to a recent report from BofA Securities. Economy, midscale, and upper midscale properties have consistently lagged behind their higher-end counterparts across key metrics including revenues, room demand, and revenue per available room (RevPAR).
“Any way we slice the data, the lower end lodging chainscales have underperformed meaningfully over the last 3, 5 and 10 years,” BofA analysts stated. Companies with substantial exposure to these struggling segments include Choice Hotels and Wyndham, while Marriott, Hilton, and Hyatt have demonstrated stronger performance.
The performance gap has notably widened since 2023. Data indicates that low-end chains experienced an average 0.5% decline in RevPAR growth per quarter, contrasting sharply with the 2.5% growth recorded by high-end hotels. For instance, Choice and Wyndham’s domestic RevPAR lagged Marriott, Hilton, and Hyatt in seven of the last eight quarters, with their sole period of outperformance attributed to temporary storm-related demand.
Economic Shifts and Consumer Behavior Driving Weakness:
The report attributes this weakness to a breakdown in long-standing economic relationships. Historically, from 1996 to 2019, corporate profits and non-residential investment grew in tandem with lodging revenue. However, since 2023, while corporate profits have grown by 5.8%, lodging revenue has increased by a mere 2%. The correlation between lodging and GDP has also declined sharply, from 72% before the pandemic to 52% afterward. “These relationships have frayed,” analysts noted, pointing to a clear mismatch between overall economic growth and demand at the lower end of the hotel market.
Consumer spending patterns further compound the challenge. BofA’s credit card data reveals that overall travel spending has declined by approximately 2% annually since early 2023, even as general consumer spending has shown modest growth. This decline is particularly pronounced among lower-income households. In the first half of 2025, households earning under $66,000 cut their hotel spending by 5.3%, compared to a 2.2% decline for middle-income households and a 1.1% decline for upper-income households. “This bifurcation began at the start of 2025 and has only increased since,” the brokerage observed, highlighting a strong correlation between low-income card spending and low-end room revenue.
Sentiment and Geography Add Pressure:
Consumer sentiment also plays a role, with the University of Michigan’s consumer sentiment index falling to levels comparable with the global financial crisis. Surveys indicate that lower-income travelers have the weakest intentions to travel, posing a significant risk for hotels heavily reliant on this demographic. “Travel, given its large ticket and need for advance planning, could be particularly exposed,” analysts warned.
Geographical factors are adding to the pressure. Low-end hotels are often concentrated in “drive-to” and “sunbelt” markets, both of which are currently struggling. Vehicle miles traveled per capita remain 3% below 2019 levels, despite a 43% rise in GDP since then. Sunbelt RevPAR has been flat this year, contrasting with 3% growth in other regions.
Companies like Wyndham and Choice derive 84% to 92% of their exposure from these lower-end segments, while higher-end chains benefit from greater exposure to urban and central business districts, where RevPAR has risen by 3.4% against a 0.7% industry average.
