Group demand for hotels declined in the second quarter

Room rates still grew at robust pace, but that may not last

By Jan Freitag

CoStar Analytics

August 5, 2025 | 8:27 AM

Group demand for full-service hotels declined in the second quarter year over year. This was the second time in the last three quarters that demand from corporate, association and social events fell compared to the same quarter last year. Pricing for group rooms remained robust, but in a slowing demand environment, prices often decelerate as well, so the outlook for the remainder of the year is less constructive.

Group rooms, sold in increments of 10 or more, are a critical demand source for luxury and upper-upscale hotels. They are sourced with long lead times, often quarters in advance, to secure room blocks at a discounted rate. Hotel operators rely on groups to provide room revenue but also to spend outside of the room in restaurants, spas and banquet venues. That is one reason why group rooms often show a slightly lower average daily rate than transient rooms.

The recent softness in group demand, following a period of robust growth in early 2024, likely stems from multiple contributing factors. Notably, recent tariff announcements have introduced uncertainty into the cost structures of companies reliant on imported goods. The lack of sustained clarity regarding input costs, compounded by ongoing increases in inflation, has prompted many management teams to implement cost-reduction measures that may include slashing corporate travel budgets. As a result, organizations that initially intended to send multiple representatives to meetings or events may have reduced participation or withdrawn entirely.

While demand for group rooms softened, ADRs maintained their robust growth rate. Outside of the last quarter of 2024, ADR growth compared to the same quarter last year has been above the level of inflation in the last 18 months, something that cannot be said about the overall U.S. hotel ADR growth rate. Group-oriented hotels, therefore, had a better setup to maintain real rate growth over the last few quarters.

However, the persistent decline in demand observed over the past three months may signal an environment in which rate increases become more subdued as operators seek to stimulate demand. This could result in a slower pace of ADR growth for luxury and upper-upscale hotels.

Looking ahead, the uncertainty in the macroeconomic environment, together with cost increases through higher inflation or tariffs, could lead corporations to rein in spending and cut costs. Any decline in demand and occupancy could lead to less ADR growth or even rate cuts. This could lead to further decreases in revenue per available room growth in the latter part of 2025 and into 2026.