U.S. lodging demand elevated at a median annual charge 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 Might 2025 version of Resort Horizons, CBRE lowered its forecast for lodging demand development in 2025 to .9 p.c. With lodging demand rising at lower than 1 p.c, lodge house owners and operators are scrutinizing the worth of their franchise relationship since it’s the main stimulus of demand for many U.S. lodges.
Resort house owners pay a number of charges to the franchise firm to supply a wide range of providers, together with expertise, income administration, coaching, and high quality assurance. CBRE’s Developments within the Resort Trade survey captures three further franchise-related charges on a discrete foundation that relate on to the era of demand and income for a lodge:
- Royalty funds
- Advertising assessments and reservation charges
- Visitor loyalty program charges
For this evaluation, the sum of those three elements includes “whole franchise-related charges.” CBRE analyzed the funds made by 4,200 U.S. lodges in 2023 and 2024 to supply house owners and operators with info on current traits in the price of these three franchise-related charges. In 2024, these 4,200 lodges averaged 218 rooms in dimension and achieved 70.2 p.c occupancy with a $214.89 common each day charge.
2024 Annual Adjustments
From 2023 to 2024, the lodges in our pattern averaged a room’s income achieve 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 often charged as a share of income, these relative development charges concern franchisees.
Driving the outsized improve in franchise-related charges have 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 means 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 basic improve in visitor loyal vacationers, which correlates with the persevering with consolidation within the business as the key franchise firms improve their portfolio of manufacturers with strategic acquisitions. The royalty charge, which not directly generates demand, elevated by simply 2.7 p.c through the 12 months.
It’s not stunning that the best will increase in franchise charges have been noticed throughout the higher-priced chain scales, given the correlation between adjustments in income and adjustments 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 economic system classes noticed their income decline or improve lower than .5 p.c. Accordingly, franchise charge development was best at luxurious (6.4 p.c) and upper-upscale (5 p.c) properties. It is usually price noting that most 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 almost definitely contributed to the decline in reservations and the related reservation charges.
Whereas franchise charge development was best throughout the two highest-priced chain scales, whole franchise charges as a share of whole working income are best 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 charge ratio. In comparison with lower-priced lodges (midscale, economic system), mid-priced properties profit extra from visitor loyalty packages and due to this fact pay extra in visitor loyalty program charges.
Model vs. Third-Occasion Managed
We have now analyzed franchise-related charge traits by brand-managed lodges vs. these which can be managed by a third-party (or self) operator, as manufacturers typically function a lodge on behalf of an proprietor. In 2024, the adjustments in income and franchise-related charges have been better on the brand-managed lodges in our pattern.
Typically, 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 leads to decrease ratios to income in comparison with third-party managed properties, that are extra often discovered within the mid- and lower-priced chain scales.
Composition of Franchise Charges
For all the pattern, the distribution of the franchise-related charges is evenly break up among the many three elements, however variations are noticed when segmenting the pattern.
By chain scale, there’s a linear relationship between value 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 fees are lowest at lower-priced lodges, the place they common lower than 13 p.c of whole franchise-related charges. That is in line with the business expectation that the upper-priced chain scales are inclined to garner better visitor loyalty. Because the franchise firms are including extra manufacturers to their portfolio, we count on to see continued outsized development in visitor loyalty charges.
At brand-managed lodges, we notice 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 firms will make concessions on the royalty charges to realize the administration contract. That is to say a brand-managed property essentially gives 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 an ordinary franchise settlement could be better than brand-managed, regardless of the better franchise charges. As in all circumstances with the business, the very best administration is extremely variable and market dependent.
Comfortable vs. Core Manufacturers
Roughly 4 p.c of our pattern was affiliated with a comfortable model, which usually gives the advantages of the reservation methods, advertising initiatives, and visitor loyalty packages of core manufacturers, however permits better flexibility relating to amenities, providers, 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 break up between the three franchise-related charge elements was virtually an identical. 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 the majority soft-brand lodges function within the upper-priced chain scale and are sometimes operated by third-party administration firms.
One other possible clarification 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 charge, this potential affect is inflicting some better development in franchise charges.
