U.S. lodging demand elevated at a median annual fee of simply .7 % in 2023 and 2024, after two years of double-digit progress popping out of the pandemic in 2020. Within the Might 2025 version of Lodge Horizons, CBRE diminished its forecast for lodging demand progress in 2025 to .9 %. With lodging demand rising at lower than 1 %, lodge house owners and operators are scrutinizing the worth of their franchise relationship since it’s the major stimulus of demand for many U.S. motels.
Lodge house owners pay a number of charges to the franchise firm to offer quite a lot of companies, together with know-how, income administration, coaching, and high quality assurance. CBRE’s Tendencies within the Lodge Business survey captures three extra 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. motels in 2023 and 2024 to offer house owners and operators with data on current developments in the price of these three franchise-related charges. In 2024, these 4,200 motels averaged 218 rooms in measurement and achieved 70.2 % occupancy with a $214.89 common every day fee.
2024 Annual Modifications
From 2023 to 2024, the motels in our pattern averaged a room’s income acquire of two.7 %, whereas whole working income elevated by 3 %. Concurrently, whole franchise-related charges elevated by 3.5 %. Since franchise charges are incessantly charged as a share of income, these relative progress charges concern franchisees.
Driving the outsized enhance in franchise-related charges had been the visitor loyalty program prices (3.9 %) and reservation/advertising assessments (3.8 %). Since a portion of those charges is predicated on the income generated by loyalty program company and reservations made by 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 common enhance in visitor loyal vacationers, which correlates with the persevering with consolidation within the trade as the main franchise firms enhance their portfolio of manufacturers with strategic acquisitions. The royalty price, which not directly generates demand, elevated by simply 2.7 % 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 adjustments in income and adjustments in franchise-related charges. In 2024, motels 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 enhance lower than .5 %. Accordingly, franchise price progress was biggest at luxurious (6.4 %) and upper-upscale (5 %) properties. Additionally it is value 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 motels (-6.6 %) in our pattern. Additional investigation revealed {that a} decline in demand for the midscale motels almost definitely contributed to the decline in reservations and the related reservation charges.
Whereas franchise price progress 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 motels 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 motels (midscale, financial system), mid-priced properties profit extra from visitor loyalty packages and subsequently pay extra in visitor loyalty program charges.
Model vs. Third-Social gathering Managed
Now we have analyzed franchise-related price developments by brand-managed motels 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 had been higher on the brand-managed motels in our pattern.
Typically, manufacturers are likely to handle the luxurious and upper-upscale motels inside their portfolio, and the higher-priced motels obtain higher good points in income and even higher progress in franchise-related charges. This brand-managed orientation towards higher-priced motels additionally ends in decrease ratios to income in comparison with third-party managed properties, that are extra incessantly 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 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 % of the overall franchise-related funds made by luxurious and upper-upscale motels. Conversely, visitor loyalty program fees are lowest at lower-priced motels, the place they common lower than 13 % of whole franchise-related charges. That is in keeping with the trade expectation that the upper-priced chain scales are likely to garner higher visitor loyalty. Because the franchise firms are including extra manufacturers to their portfolio, we anticipate to see continued outsized progress in visitor loyalty charges.
At brand-managed motels, we observe that the royalty charges averaged simply 15 % of whole franchise-related charges in 2024. For third-party managed properties, this ratio was 49.8 %, reflecting that franchise firms will make concessions on the royalty charges to achieve the administration contract. That is to say a brand-managed property essentially offers 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 normal franchise settlement could be higher than brand-managed, regardless of the higher franchise charges. As in all circumstances with the trade, the most effective administration is extremely variable and market dependent.
Gentle vs. Core Manufacturers
Roughly 4 % of our pattern was affiliated with a comfortable model, which usually offers the advantages of the reservation methods, advertising initiatives, and visitor loyalty packages of core manufacturers, however permits higher flexibility concerning services, companies, and working requirements.
Gentle-brand motels pay the identical three franchise-related charges charged to the core-brand properties. Compared to the core-branded motels in our pattern, the break up between the three franchise-related price elements was virtually equivalent. Nonetheless, from 2023 to 2024, revenues and franchise-related charges elevated at a higher tempo on the soft-brand motels in our pattern in comparison with the core-brand properties. These two metrics point out that almost all soft-brand motels function within the upper-priced chain scale and are sometimes operated by third-party administration firms.
One other doubtless clarification for the higher rise in franchise charges on the soft-branded properties is a rise in F&B-related charges. Gentle-branded motels are likely 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 affect is inflicting some higher progress in franchise charges.