US Hospitality Market Outlook 2025: Performance, Investment Trends, and Opportunities

The Westin Bonaventure Hotel & Suites - Los Angeles

Market Performance Overview – Occupancy, ADR & RevPAR Trends

The U.S. hotel industry has entered 2025 in a slow-growth mode. National occupancy for the trailing 12 months sits around 63.1%, with an average daily rate (ADR) of about $160 and revenue per available room (RevPAR) near $101. These metrics indicate a near recovery to pre-pandemic levels – for context, 2025 occupancy is projected at 63.4%, just 2.4 percentage points below 2019’s peak. However, growth has recently decelerated. RevPAR rose only ~2.2% in Q1 2025 compared to the prior year, and monthly gains slowed from +4.5% in January to only +0.8% by March. This modest RevPAR uptick (roughly +1.8% for full-year 2024) was driven by small ADR increases (~1.7% YoY) that lagged inflation, indicating limited pricing power in many markets.

Performance varies widely by hotel class. Luxury and upper-upscale hotels are outperforming, buoyed by high-end leisure and recovering group travel. In early 2025, RevPAR for luxury-tier hotels grew about 4.2% YoY, far outpacing the +1.9% RevPAR growth in the economy segment. Upper-upscale occupancies are back in the high-60s range with ADRs well above $250, whereas midscale and economy hotels see occupancy in the mid-50s% with ADRs under $100. For example, luxury & upper-upscale properties average roughly 67-68% occupancy with ADR ~$273 (RevPAR ~$184), versus 55% occupancy and ADR ~$87 (RevPAR ~$48) in the midscale & economy tier (Q1 2025 data). This bifurcation reflects two trends: affluent travelers are bolstering top-tier hotels (aided by strong premium air travel demand), while price-sensitive segments face headwinds as pandemic-related demand (e.g. disaster displacement housing) fades. Notably, room rate growth outside the luxury class is running below inflation, squeezing profit margins even as costs rise. In short, upper-end hotels are reclaiming pricing power, but economy hotels are struggling to meaningfully raise rates in real terms.

Another emerging pattern is the strength of group and business travel in specific markets. Full-service hotels with meeting space saw group RevPAR jump 7.3% in Q1 2025, with ADR up 4.5% for group business. Cities hosting major events enjoyed outsized gains – for instance, New Orleans and Washington D.C. benefited from one-time events that boosted demand. Conversely, markets that boomed in 2024 faced tougher year-over-year comparisons: Phoenix and Anaheim saw RevPAR drop by double digits in early April 2025 compared to the prior year, since last year’s events (like the Super Bowl or conventions) inflated the 2024 base. On the positive side, Las Vegas posted a stunning 44.6% RevPAR increase (ADR up 36% to $223, RevPAR $188.76) for the week ending April 5. Thanks to rebounding convention traffic and spring break leisure travel. In summary, overall hotel performance is positive but muted, with RevPAR growth around 1–2% and significant variance by class and market. Investors should anticipate continued slow topline growth in the near term and pay close attention to local market dynamics and segment mix when evaluating opportunities.

Revenue Segmentation by Property Size and Service Type

The U.S. hotel industry is highly fragmented, and property size is a key factor in revenue distribution. There are over 50,000 hotel properties across the country, ranging from roadside motels to mega-resorts. The vast majority of establishments are small. In fact, nearly 70% of U.S. hotels have 50 or fewer rooms, and almost 90% have no more than 75 rooms. Yet, these small hotels account for a much smaller share of total revenues compared to large properties. Many budget and economy hotels are limited-service (offering just rooms and minimal amenities), which caps their revenue per property. By contrast, big full-service hotels (with hundreds of rooms, restaurants, and event spaces) generate outsized revenue.

Approximate share of U.S. hotel industry revenue by property size category. Large properties (300+ rooms) account for a disproportionate revenue share despite being relatively few in number.

Industry analysts estimate that medium-to-large hotels (75+ rooms) drive the bulk of hotel revenues – roughly three-quarters of the total – even though they represent only about 30% of properties. As illustrated above, large hotels (300+ rooms), such as convention center hotels and luxury resorts, might constitute well under 10% of the property count but can produce ~35% of all revenue. Small properties (under 75 rooms) are extremely common but contribute a modest slice (perhaps 15–20%) of total lodging revenue. This imbalance underscores the higher capacity and rates of big hotels. Developers and investors often favor scaled assets for their superior earnings potential, whereas the prevalence of small properties reflects the long tail of independently run motels and inns serving local demand.

Segmentation by service level further influences revenue patterns. Full-service hotels (typically upscale or luxury, often 200+ rooms) earn income from multiple streams – rooms, food & beverage outlets, meetings, spa, etc. – allowing them to capture higher revenue per guest. Select-service and limited-service hotels (common in the midscale segment) focus mainly on room revenue with limited F&B, which keeps operating costs lower but also means total revenue per property is lower. In 2023, for example, U.S. hotels in the upscale chain scales (many of which are select-service brands) achieved an average RevPAR around $100 – solid, but only about half the RevPAR of luxury hotels.

Extended-stay hotels represent another service segment gaining investor attention. These properties, which cater to guests staying a week or longer (often with in-room kitchens and pared-down daily services), have been a star performer in recent years. Extended-stay hotels (especially economy and mid-priced ones) sustained occupancies ~10 percentage points higher than the industry average in 2024, thanks to stable demand from traveling nurses, project crews, and relocating families. This translated into steadier revenue and outperformance during downturns, making the segment attractive to developers (indeed, extended-stay room supply grew ~6% annually since 2013, nearly 3× the industry average).

From a revenue standpoint, upscale limited-service and extended-stay properties often hit the “sweet spot” – they combine relatively high room counts and decent ADRs with efficient operations, yielding healthy margins. Meanwhile, boutique and experiential hotels – a niche but growing category – punch above their weight in revenue generation. Boutique hotels (independent or soft-branded lifestyle properties) tend to command premium rates due to their unique designs and locations. In 2017, boutique hotels made up only 3.2% of U.S. hotel rooms but captured about 5.6% of room revenues, reflecting their higher RevPAR on average. This trend has likely accelerated as travelers (especially millennials and Gen Z) show willingness to pay for distinctive, experience-rich accommodations. Overall, understanding these revenue segments is crucial: larger and higher-service properties generate disproportionate revenue, while smaller limited-service hotels, despite being numerous, contribute modestly. Investors should thus tailor their strategies – e.g. targeting high-performing niches like upscale extended-stays or drive-to resorts – depending on whether they prioritize scale of revenue or operational simplicity in their portfolios.

Market Concentration and Major Players

Despite some big-name brands, the U.S. hotel landscape remains relatively unconcentrated, with numerous owners and operators. The largest hotel companies – Marriott International, Hilton Worldwide, and Best Western – are identified as the top three players in the U.S. hotels & motels industry. These giants (along with other majors like Wyndham, IHG, Choice Hotels, and Hyatt) collectively operate tens of thousands of franchised or managed properties across the country. For example, Marriott alone has over 5,500 properties in North America, and Marriott, Hilton, and IHG collectively account for roughly 68% of all rooms in the U.S. development pipeline as of early 2023. However, in terms of market share, even the largest firms only command single-digit percentages of the total U.S. lodging revenue. The industry’s composition includes many independent hotels and small regional chains, ensuring a competitive environment in most markets. Franchise affiliations are widespread – roughly half of all U.S. rooms are branded – but ownership is diffuse (REITs, private equity, mom-and-pop proprietors, etc.). This fragmentation means market concentration is low: no single company dominates nationwide, and even the top 5–10 brands represent only a fraction of the $240+ billion U.S. hospitality market.

That said, major hotel companies exert significant influence on industry trends. They have the largest loyalty programs, marketing budgets, and development pipelines, which helps steer demand and supply. Marriott and Hilton in particular have been aggressively expanding their brand portfolios and footprints. In the construction pipeline, they are each associated with over 1,400 projects in the U.S. (as of Q1 2023) – a record level of development. These new projects are heavily skewed toward the limited-service and extended-stay end of the spectrum, via brands like Hilton’s Home2 Suites (which led all brands with 546 projects in pipeline) and Marriott’s TownePlace Suites. This indicates the majors are betting on the high-growth midscale extended-stay space. Franchise conversion activity is also high – in 2023, a record number of hotels converted to new brands (over 1,000 projects), with Marriott, Hilton, and IHG leading those conversions as owners seek the shelter of big brands in uncertain times.

In terms of performance, the publicly traded hotel companies saw strong recovery in 2022–2023, though 2024 growth was tepid. Many of the big brands have reported full recovery of average rates to 2019 levels and healthy margins due to post-pandemic cost cuts. However, they have also noted soft spots in 2024/25 demand: for instance, Hilton and Marriott cited weaker demand in some urban and international inbound segments, even as their resort and upscale select-service properties thrive. Best Western, as a membership-based affiliation of mostly midscale hotels, benefited from the resurgence of road trips and “drive-to” leisure travel; its portfolio’s performance has mirrored the broader midscale trend (solid summer leisure, weaker corporate travel). Market concentration is gradually inching up via mergers and soft-brand collections, but the hotel sector remains one where even the largest companies depend on overall economic trends and travel patterns rather than commanding them. For investors, this means competition is intense – aligning with a strong brand is often wise for new developments, but independent hotels can still carve out lucrative niches (as seen in the boutique segment) with the right offering. The major players will continue to dominate development pipelines and corporate travel contracts, but a long tail of smaller operators will persist, keeping the industry entrepreneurial.

Key Demand Drivers and Macroeconomic Influences

Several macro-level demand drivers are shaping the U.S. hospitality market in 2025. Consumer spending on travel has been robust, underpinned by a strong job market and pent-up leisure demand. In 2024, despite economic concerns, household spending and business investment remained solid, helping the hotel sector achieve modest growth. Americans, especially younger generations, continue to prioritize travel – surveys indicate that over three-quarters of millennials and Gen Z prefer to spend on experiences rather than things, sustaining a healthy appetite for vacations, concerts, festivals, and other hotel-generating activities. This experiential travel trend is driving up demand for unique hotels and destinations (think national park lodges, boutique lifestyle hotels, etc.), and has kept leisure travel volumes high even as pandemic-era “revenge travel” normalizes. Domestic leisure tourism remains the bedrock of demand – beach, mountain, and amusement park markets saw record RevPAR last year – while “bleisure” travel (combining business trips with leisure days) continues to blur segments and fill rooms over weekends.

Inflation and income trends play a dual role. On one hand, higher wages and savings enable more travel spending; on the other, elevated inflation has driven up operating costs and squeezed consumers’ budgets. Over 2022–2024, hotel operators faced sharp rises in labor, utilities, and goods costs, forcing ADR increases to maintain profitability. Yet as noted, ADR growth (~+1.7% in 2024) lagged inflation, meaning many hotels effectively saw real room rates decline. This reflects both competitive pressures (from short-term rentals and a surplus of choices for consumers) and cautious corporate travel policies. Looking ahead, inflation has begun to ease from its 2022 peak, which could relieve some cost pressure. At the same time, Oxford Economics halved its 2025 U.S. GDP growth forecast from 2.4% to 1.2%, citing higher interest rates and cooling consumer demand. Slower economic growth could temper hotel demand, especially in price-sensitive segments. Thus, while travel spending remains a relative bright spot, hoteliers are wary that a softer economy or any dip in consumer confidence could curtail discretionary trips.

Another critical driver is international and domestic tourism flows. Global travel has largely rebounded – international tourist arrivals in 2024 nearly reached pre-pandemic levels (99% of 2019 globally). The U.S. is benefiting from this recovery, with improving inbound volumes from Europe, Latin America, and Asia. However, the rebound of overseas visitors to the U.S. has lagged the global trend due to a few factors. The strong U.S. dollar in recent years made the U.S. an expensive destination, and visa processing delays and other frictions slowed the return of some international travelers. Moreover, recent policy signals have had an impact: For instance, in early 2025, the U.S. administration’s heated rhetoric on trade and security has dampened some inbound travel from Canada and Europe. Canadian visits to the U.S. were down in Q1 as tariffs and border staffing issues created headwinds. Similarly, some European tourists saw travel advisories that tempered demand. These political and regulatory influences are an unusual factor weighing on what is otherwise a broadly recovering international tourism segment. On the domestic front, business travel is slowly improving but remains below 2019 levels in many markets. Large corporations have been cautious with travel budgets, and the federal government recently curtailed non-essential travel for employees, which hits hotels in government-dependent markets like D.C. and Colorado Springs. The flip side is group travel – conferences and conventions have made a comeback, as evidenced by strong group bookings in many cities (group occupancy and room block pickups in late 2024 were the highest since 2019 for many convention hotels). Air travel volumes support this narrative: premium airline cabin bookings are strong (benefiting luxury hotels), while economy class bookings and some international routes remain softer, hinting at a bifurcated travel recovery.

In summary, demand drivers for U.S. hotels in 2025 are mixed. High leisure demand and consumer prioritization of travel are positives, along with a resurgence in group events. Headwinds include macroeconomic uncertainty, high operating costs, and policy-related drags on certain travel segments. Additionally, the competitive landscape – with alternative accommodations (Airbnb/VRBO) now firmly entrenched – means hotels must continually up their game to attract guests. It’s notable that in markets where short-term rentals pulled back (e.g. New York City’s new restrictions on Airbnb in late 2023), hotels quickly absorbed displaced demand – indicating how regulatory changes can swing demand between lodging sectors. For investors, keeping an eye on these big-picture trends – from inflation’s trajectory and consumer confidence, to international travel policies and the pace of business travel’s return – will be key to forecasting performance.

Construction Pipeline Trends and Supply Growth

On the supply side, the U.S. hotel industry is experiencing historically low new supply growth, even as demand has rebounded. The development pipeline is active but constrained by higher construction costs and financing hurdles. As of early 2025, the number of hotel rooms under construction nationwide hovers around 150,000 – remarkably, this figure has stayed in a narrow band (150k–160k rooms) for about 39 months straight. In other words, new hotel construction has been effectively flat since 2020, a dramatic slowdown compared to pre-pandemic expansion. For perspective, the pipeline peaked at ~214,000 rooms in construction in 2020. Developers face a “higher for longer” interest rate environment, which has made financing new projects challenging and pushed many projects into the planning stage instead of groundbreaking. The result: annual U.S. hotel supply growth was just 1.2% in 2024, and is forecast to be around 1.5% in 2025 (rising to 1.7% in 2026). These growth rates are well below the long-term average (~2%+). Such limited new supply is a silver lining for existing owners – it supports occupancy and pricing power – but it also means fewer new opportunities coming online for investors to acquire.

Regional differences in construction are pronounced. Development activity is concentrated in high-growth Sun Belt markets and a few coastal cities. According to Lodging Econometrics, Dallas leads the nation with a record 204 hotel projects (23,669 rooms) in its pipeline, followed by Atlanta with 168 projects (19,431 rooms) and Nashville with 130 projects. Other pipeline leaders include Phoenix (130 projects) and the Inland Empire region of California (122 projects). These markets are benefiting from strong economic and population growth, as well as more available land for development. In contrast, gateway cities like New York have smaller pipelines – New York City has 36 projects under construction (about 5,900 rooms), reflecting both a saturation of supply pre-pandemic and more cautious developer sentiment now. The pipeline composition also skews towards smaller, lower-cost projects. Many developments are limited-service or extended-stay properties that are cheaper to build and can succeed in secondary markets. In fact, by chain scale, the upper midscale segment (think Hampton Inn, Holiday Inn Express) has the most projects in planning – over 2,300 projects nationwide – indicating developers’ preference for the mid-priced hotel space. Upscale and midscale projects together dominate the pipeline, while luxury developments are few (upper-upscale projects in planning are only ~338 total across the U.S.).

A notable trend is the surge in conversions and renovations in lieu of new builds. Many owners are opting to reflag or repurpose existing hotels rather than build from scratch. At the end of 2024, there were over 1,300 hotels in the conversion pipeline (adding or switching brands) – an all-time high. Another ~660 hotels were undergoing major renovations. Combined, these nearly 2,000 projects (conversion + renovation) represent a significant portion of development activity. This trend highlights how capital is being invested in updating and repositioning assets, which can be quicker and less risky than ground-up construction in the current climate. Supply growth is also being curbed by external factors: higher construction material costs (partly due to tariffs), labor shortages in construction trades, and in some areas, stringent zoning or community resistance to new hotel projects. For example, several cities have introduced moratoria or stricter approvals for new hotels (often to encourage residential development or due to concerns about short-term rental regulation parity).

Overall, the hotel construction pipeline in 2025 is robust but not translating into rapid new supply. The projects that are moving forward tend to be in markets with the strongest demand outlook (Texas, the Southeast, etc.) or are niche products like extended-stay (a segment with proven resilience). Developers also remain keen on experiential and boutique projects where they see unique demand – think high-end boutique resorts or soft-branded lifestyle hotels in urban markets – but these are smaller in scale. For investors and developers, this landscape implies that existing assets have increased value due to limited new competition, and development opportunities, while present, require navigating higher costs and likely focusing on the right product in the right market. Select markets (Dallas, Atlanta, etc.) bear watching for potential oversupply in the coming years given their large pipelines, whereas many other markets may actually face under-supply if demand continues to grow and few hotels open. Strategic development in underserved areas or segments could pay off, especially if the economic cycle improves and financing costs eventually ease.

Investment Trends: Transactions, Cap Rates, and Financing

After a boom in 2021, U.S. hotel investment activity has cooled substantially, reflecting the tighter capital market conditions. Transaction volume hit a record $54 billion in 2021 (boosted by some big portfolio deals). By 2022, volume normalized to $48.6 billion – the second-highest ever recorded, signaling strong investor appetite during the recovery phase. However, as the Federal Reserve’s interest rate hikes took hold, hotel sales volume dropped sharply in 2023, falling from about $52 billion in 2022 to just $24 billion in 2023. This ~50% decline was one of the steepest among real estate asset classes, driven by rising borrowing costs and a widening bid-ask gap between buyers and sellers. Initial expectations for a rebound in 2024 did not materialize strongly. Total hotel transaction volume in 2024 came in around $21 billion marking a second consecutive annual decline. Single-asset sales, particularly for large full-service hotels, were scarce as owners held on rather than sell at depressed values. Most trades have been in the sub-$50M range – indeed, roughly $2.2 billion of smaller hotel deals transacted in Q1 2025, comprising a large share of total volume that quarter. Overall, Q1 2025 hotel sales volume was down ~30% year-over-year reflecting continued caution.

Investors require higher yields in this environment, leading to rising cap rates for hotel assets. As a benchmark, hotel cap rates averaged about 8.0% in Q3 2023 (nationwide, all segments). That is up from pre-pandemic averages in the 6–8% range, and this upward pressure continued into 2024. Many value-add and lower-tier hotels are now trading at cap rates in the high single digits to low double digits, especially in secondary markets. Meanwhile, top-tier urban and resort hotels (when they do trade) can still command lower cap rates – for example, the sale-leaseback of the Encore Boston Harbor (a casino resort) in late 2022 was done at a 5.9% cap rate, and luxury resort sales have seen prices topping $1 million per key with cap rates in the 6–7% range. But those are outliers. Broadly, higher interest rates have lifted lodging cap rates by 50-150 basis points from 2019 levels, forcing valuations down. In some cases, the cost of debt has exceeded cap rates (e.g. hotel CMBS loans in 2023 carried ~8.4% interest on average, slightly above prevailing cap rates), which made leveraged acquisitions unattractive. This environment favors all-cash or low-leverage buyers such as certain PE funds and family offices. REITs have been net sellers over the past year, and some distressed sales have started to emerge (e.g. older urban hotels with weak recovery).

One bright spot in financing: the hotel CMBS (commercial mortgage-backed securities) market saw a resurgence in 2024. Roughly $20 billion in hotel CMBS loans were issued in 2024, more than the combined issuance of 2022 and 2023. This indicates that lenders and investors regained confidence in hotel cash flows post-pandemic, and many owners took the opportunity to refinance or acquire debt through CMBS. However, this momentum has recently slowed – Q1 2025 CMBS loan volume for hotels declined ~44% YoY, totaling only about $1.1 billion in proceeds for the quarter. The pullback mirrors the overall capital markets volatility and lenders tightening underwriting standards. Outside of CMBS, traditional bank lending for hotels has been tight, with regional banks (who often finance hotel construction and bridge loans) under pressure. On the equity side, transaction metrics like price per key have moderated from 2021 highs. The average price per room across all hotel sales was about $177,000 in 2024 (per MMCG sources), down from over $200,000 in 2022. Of course, pricing varies widely: high-end luxury assets can fetch well above $500k/key, whereas economy hotels trade at $50k/key or less.

U.S. hotel investment transaction volume by year (2018–2024). After a record spike in 2021, transaction volumes have declined sharply amid rising interest rates and economic uncertainty.

For investors and developers, these investment trends carry important implications. Hotel asset values are under pressure, but this could present buying opportunities for those with capital and a long-term view, as pricing is more reasonable now than the frothy market of 2021. Cap rates near 9%–10% make hotels one of the higher-yielding real estate asset types (compared to multifamily or industrial, which have much lower yields), but they also reflect the greater perceived risk and financing difficulty. Those who currently own hotels have seen property valuations dip, which may restrict their ability to refinance or sell at a profit in the short term. At the same time, low new supply and recovering demand suggest that well-located hotels should see NOI growth, which could attract investors back as the economy stabilizes. Indeed, many market participants expect transaction activity to pick up in late 2025 if interest rates plateau or start to fall – a sentiment expressed at recent industry conferences. The CMBS market’s re-engagement is a positive sign that credit could become more available, albeit selectively. Finally, in the lending arena, some creative financing (mezzanine debt, PACE loans for renovations, etc.) is being used to bridge the gap. Investors should remain vigilant about debt maturities in the sector – a wave of hotel loans comes due in 2025–2026, which could spur more sales or recapitalizations, especially if banks refuse to extend. In conclusion, the hotel investment climate is one of cautious optimism: fundamentals are improving, but the capital markets have yet to fully reopen to hotels, keeping a lid on liquidity in the short term.

Opportunities: Extended-Stay, Boutique & Experiential Segments

Amid the shifting landscape, certain hospitality segments stand out as opportunities for investors and developers. One such segment is extended-stay hotels. As noted, extended-stay properties have consistently outperformed in occupancy and delivered steady cash flows. Economy and mid-priced extended-stay hotels (brands like Residence Inn, Home2 Suites, WoodSpring Suites, etc.) cater to a growing demand for temporary housing – from traveling nurses to infrastructure project crews to families relocating or on long vacations. This segment’s resiliency was proven during the pandemic (when other hotels emptied out, extended-stays retained guests) and continues in the recovery. Developers have taken notice, making extended-stay one of the fastest-growing segments in the construction pipeline. The appeal is clear: lower operating costs (e.g. limited housekeeping, minimal F&B) combined with longer average stays that reduce marketing and reservation costs. For investors, cap rates on extended-stay hotels can be very attractive relative to their risk profile, and many markets remain underserved in extended-stay supply (especially suburban and small metro areas where extended-stay demand from business parks or hospitals is present). The opportunity is to either develop new projects or acquire and convert older limited-service hotels into updated extended-stay formats. That said, competition is increasing – major players have launched new brands targeting this space (e.g. Marriott’s TownePlace and Hilton’s Homewood Suites expansions), so location and product quality remain key to success.

Another opportunity lies in the boutique and lifestyle hotel segment, which taps into the aforementioned experience-seeking traveler trend. Boutique hotels and soft-branded lifestyle collections (like Marriott’s Autograph Collection, Hilton’s Curio, Hyatt’s JdV, etc.) allow developers to create unique properties with the support of a distribution network. Guests, especially younger ones, are often willing to pay a premium for hotels that offer character, local flavor, and Instagram-worthy design. The boutique hotel market in the U.S. has grown faster than the overall industry in recent years, outpacing others in ADR and RevPAR growth. These properties typically achieve higher ADRs – hence the stat that they contribute a greater share of revenue than of room supply. Markets such as Nashville, New Orleans, Austin, and Charleston have seen a boom in boutique developments, converting historic buildings or developing art-inspired hotels. Investors with an eye for differentiated product can find higher margins here, though operational intensity is also higher (boutiques often require top-notch service and marketing to succeed). Experiential hospitality extends beyond just boutique hotels; it includes resorts offering curated experiences (wellness retreats, adventure tourism lodges, glamping sites, etc.). These niches are benefiting from the “experience economy” – travelers wanting more than a generic stay. For example, high-end camping and glamping sites have drawn investment as they command luxury-level rates with relatively low development costs. Similarly, experiential resorts that integrate local culture, wellness, or adventure activities can drive strong loyalty and word-of-mouth demand.

Upscale limited-service hotels could also be considered an opportunity given their robust performance. Brands like Hampton Inn, Courtyard, and Hilton Garden Inn have been the workhorses of the recovery, capturing both leisure and business transient demand in many markets. They offer higher ROI due to lower staffing requirements than full-service hotels, yet can attain solid ADRs. Many investors view these select-service assets in strong markets as “bread and butter” investments with reliable yields. This is reflected in the pipeline – as mentioned, upper-midscale and upscale projects dominate new development. There may be opportunities to reposition older select-service hotels (through renovation or brand change) to better align with current demand (for instance, adding modern meeting pods, upgraded fitness, or grab-and-go marketplaces to refresh a 15-year-old select-service property).

Lastly, alternative accommodations integration presents an opportunity. Some hotel developers are experimenting with hybrid models – for example, adding hostel-like rooms or apartment-style units to hotels, or managing Airbnb units alongside a hotel. This can capture the segment of travelers who prefer vacation rental features (kitchens, local feel) while still leveraging hotel management. As the lines between traditional hotels and short-term rentals blur, savvy investors may find ways to offer more flexible lodging products. Additionally, with many urban apartments converting to short-term rental or quasi-hotel use, there is opportunity in the “apartment hotel” or serviced apartment concept for extended stays, which in effect competes with both hotels and Airbnbs.

In summary, the opportunities in the U.S. hospitality market center on segments that align with evolving traveler preferences and solid demand fundamentals. Extended-stay hotels offer stability and growth, boutique/experiential hotels offer high-revenue potential and differentiation, and select-service hotels offer efficient operations and broad appeal. Investors should consider focusing on these areas, and developers might prioritize projects that either target these segments or incorporate their elements (e.g. adding kitchenettes for some extended-stay rooms, creating unique communal spaces for a sense of experience, etc.). While the overall market is in a moderate growth phase, these niches provide avenues for outsized performance.

Risks and Uncertainties in the Outlook

While the hospitality outlook has many positive aspects, investors and developers must contend with a range of risks and uncertainties. One major risk is the macroeconomic climate – hotels are highly sensitive to economic swings. With a potential economic slowdown on the horizon (given rising interest rates and global headwinds), there’s a risk that travel demand could soften beyond current forecasts. Even a mild recession could lead businesses to cut travel budgets and some consumers to scale back vacation plans, pressuring occupancy and rate. The RevPAR growth forecast of ~1.8% for 2025 is already modest, and experts warns it is at risk if the economy underperforms. Closely tied to this is inflation and cost uncertainty. If wage growth and other cost inflation remain elevated, hotels might face margin erosion, especially if they cannot raise room rates accordingly. Labor shortages continue to plague many markets – around 80% of U.S. hotels report being understaffed as of late 2024, according to industry surveys – which can hurt service levels and guest satisfaction if not managed, potentially dampening demand or pricing.

Another significant uncertainty is regulatory shifts and political factors. We’ve already seen how government action can impact hotels: the federal clampdown on employee travel reduced demand in markets like D.C., and trade tensions with Canada led to measurable drops in Canadian visitors (important in border states). Looking ahead, policies on things like visa issuance, pandemic-related travel rules, or government travel budgets could change and affect demand in unpredictable ways. More locally, regulations on short-term rentals are a double-edged sword for hotels. If cities continue to tighten rules on Airbnb (as New York, Honolulu, and others have done), hotels stand to gain business. But if states pass laws protecting short-term rentals or if enforcement is lax, hotels, especially in vacation destinations, will continue to face stiff competition from this alternative lodging sector. The short-term rental market has expanded rapidly – platforms like Airbnb have millions of listings, and in many leisure markets, they effectively cap how high hotel rates can go by providing an abundant supply of rooms. Thus, the evolution of this space (whether through regulation or changing consumer preference) is a key uncertainty.

Supply-side risks also bear mention. While overall new supply is low, certain markets are at risk of overbuilding. The pipeline data highlights cities like Dallas and Atlanta with very large pipelines; if all those projects open in the next few years, supply could outpace demand in those locales, leading to a localized downturn in performance. Developers often assume future demand growth that may not materialize, so markets with heavy construction should be watched for signs of oversupply (e.g. declining occupancy or aggressive rate competition as new hotels open). Additionally, the construction pipeline could accelerate if financing costs dip – a resurgence of development would be positive for contractors but could create a supply glut down the line if not met by equal demand.

From an operations standpoint, competitive shifts pose risks. Guest expectations have evolved (e.g. more demand for digital conveniences, health & safety protocols, and unique experiences). Hotels that don’t invest in product and service may lose share to those that do – or to other lodging options. Brand proliferation is another factor: the big chains now have 30+ brands each, which can lead to brand overlap and cannibalization. Owners must be careful that their chosen flag is differentiated enough in a market. Technology and distribution are uncertainties too – changes in how travelers book (the rise of direct booking campaigns vs. OTA influence, Google’s travel products, etc.) can affect hotels’ distribution costs and reach.

Lastly, external shocks remain an ever-present risk. If the pandemic taught the industry anything, it’s to expect the unexpected. Geopolitical events, security incidents, or health crises can all hit travel demand suddenly. For example, international tensions or fuel price spikes can deter long-haul travel; natural disasters can impact regional tourism (as seen when hurricanes or wildfires temporarily boosted certain hotel markets due to displacement, then left a void). Climate change is a long-term risk as well – more frequent extreme weather could disrupt travel patterns and damage physical hotel assets, and the industry may face new regulations related to sustainability.

In weighing these uncertainties, it’s clear that the hospitality sector carries above-average risk but also the potential for high rewards. Investors should build in cushions for economic swings in their underwriting (e.g. test scenarios with lower RevPAR growth). Diversification – across geographies and segments – can help mitigate localized shocks. Those developing new hotels might consider phased openings or multi-use projects to hedge bets. Asset management is key: hoteliers need to stay agile, adjusting marketing, revenue management, and operations as conditions change. On the regulatory front, active engagement with local governments (through industry associations like AHLA) can help ensure fair rules (e.g. pushing for enforcement of short-term rental regulations and sensible labor policies). In summary, while risks from the economy, regulation, competition, and unforeseen events are significant, they can be navigated with prudent strategy. The U.S. hotel market has shown incredible resilience; even now, with all these challenges, it is on a path of recovery and innovation. Investors who carefully weigh these risk factors – and perhaps price them into acquisitions or project budgets – will be better positioned to ride out volatility and capitalize on the hospitality sector’s long-run growth.

Strategic Implications and Conclusion

The analysis of the U.S. hospitality market in 2025 reveals a landscape of moderate recovery tempered by caution. Performance metrics like occupancy and ADR are improving gradually, but growth is uneven across segments. Investors and developers should take an insightful, data-driven approach in this environment. Here are a few strategic implications based on the trends discussed:

Focus on Resilient Segments: The extended-stay and upscale select-service segments are demonstrating resilience and consistent demand. Investing in these segments – either through new development or acquisition – could yield steady returns even if the broader market softens. On the flip side, be selective with luxury and upper-upscale investments; while these have high RevPAR, they depend on stronger economic conditions and international travel, which face more uncertainty.

Capitalize on Low Supply Growth: With new supply at low levels nationally, existing hotels have a window to gain market share and push rates. Revenue management teams should test rate increases, especially in markets with little new competition. Developers, meanwhile, might find now is an opportune time to plan projects so that they open in a potentially tighter supply environment a couple of years out. However, avoid markets with oversupply risk – if you’re looking at Dallas or similar markets with a huge pipeline, ensure your project has a clear competitive edge or consider waiting to see how supply/demand dynamics shake out.

Leverage Major Brands and Loyalty Networks: Given the market fragmentation and the current importance of capturing every demand segment, aligning with a strong brand can be advantageous. Major hotel companies’ robust distribution systems can help properties capture travel demand that is increasingly channel-driven (mobile apps, loyalty redemptions, etc.). That said, independent and boutique hotels can succeed by differentiating – if going that route, double down on unique experiences and targeted marketing, as today’s travelers actively seek authenticity and will pay for it.

Watch the Macroeconomic Indicators: Keep a close watch on indicators like GDP growth, consumer confidence, corporate earnings (for business travel budgets), and exchange rates. These will offer early clues to travel demand shifts. For instance, if inflation continues to outpace wage growth, middle-class leisure travel may soften – suggesting a need to pivot to promotions or value-add packages to sustain occupancy. If the U.S. dollar weakens, the U.S. could see a bump in international tourists (a positive for gateway markets). Being nimble in response to these external factors will be critical.

Prepare for Capital Market Reopening: The current lull in hotel transactions won’t last forever. Capital is sitting on the sidelines and will redeploy when conditions stabilize. Investors should be ready – assemble war chests, keep an eye on distressed opportunities, and possibly lock in financing now if rates are expected to rise further. When the tide turns, those who acted during the slow period often reap rewards during the next upcycle. Similarly, if you own assets, consider refinancing or selling once the market improves (cap rates could compress again if interest rates fall in late 2025/2026, boosting values).

In conclusion, the U.S. hospitality market presents a nuanced picture for 2025. Industry fundamentals are on a steady if unspectacular upswing – occupancies in the low 60s%, ADRs growing around inflation, and RevPAR improving slightly. The market is segmented, with higher-end hotels leading in growth and economy hotels needing to reinvent value propositions. Demand drivers like leisure travel and group events are strong, but offset by macro and policy headwinds. New supply is limited overall, a boon for incumbents, yet certain locales face overbuilding risk. Investment activity is currently subdued, creating a potential buyer’s market for those able to move now. Opportunities abound in select segments – from extended-stay to experiential lodging – for those who align offerings with what today’s travelers seek.

The road ahead is not without risks: economic uncertainties, rising costs, and evolving competition will test stakeholders. Nonetheless, hospitality has historically been a cyclical but rewarding sector. By leveraging data and trends – such as those in CoStar’s national report and industry analyses – investors and developers can make informed decisions. Whether it’s acquiring assets at improved pricing, developing the next hit lifestyle hotel, or simply optimizing an existing portfolio’s performance, a keen understanding of the current market dynamics is essential. The strategic takeaway is clear: stay agile and selective, invest in what’s working (and will work in the future), and mitigate risks where possible. If executed well, these strategies will position investors and developers to thrive in the evolving U.S. hospitality market in 2025 and beyond.

April 22, 2025, by Michal Mohelsky, J.D., principal of MMCG Invest, LLC, hotel feasibility study consultant serving feasibility studies for SBA and USDA hotel loans

Interest in discussing market conditions for your hotel project? Call us at (628) 225-1110, or send us email at info@mmcginvest.com for a hotel feasibility study.

Sources:

STR / CoStar data via Lodging Magazine (April 2025)
American Hotel & Lodging Association, 2025 State of the Industry Report
Lodging Econometrics, U.S. Construction Pipeline Trend Report Q4 2024.
Mordor Intelligence, United States Hospitality Market Analysis 2025.
IBISWorld, Hotels & Motels in the US – Market Report.
Highland Group via Asian Hospitality and Hotel Management
Industry surveys and travel trend reports (Eventbrite, Vox Media) on consumer preferences.
Additional data compiled from STR, UNWTO, and U.S. Travel Association reports (2024).