➤Key Highlights

Hotel occupancy softened in 2025 as modest supply growth outpaced a slight dip in demand. National occupancy averaged 62–63%, down about 1.5% year-over-year in Q3. Rates flattened — ADR was essentially unchanged (+0.1%), and RevPAR declined 1.4%, marking the first notable cooling after a strong 2021–2024 rebound. Despite these dips, RevPAR levels remained close to historic highs.

Leisure travel continued to be the dominant driver of demand. Resort and drive-to destinations saw occupancies around 91% of 2019 levels, still strong but affected by more Americans choosing international trips in 2025. Business and group travel ticked higher: urban and convention hotels experienced improved midweek performance, with markets like St. Louis achieving 13% YoY RevPAR growth due to stronger convention activity. Conversely, markets like Houston and New Orleans saw weaker results as they lapped 2024’s hurricane-recovery surges.

A defining theme was extended-stay outperformance. These hotels held an 11.4-point occupancy advantage over the total U.S. hotel average, with far milder RevPAR declines than traditional hotels — especially in the economy extended-stay segment. Their stable customer base (project workers, long-stay relocations, insurance housing) provided insulation against leisure softness.

Alternative lodging accelerated. Short-term rental demand was ~30% higher than 2019, and cruises — fully restored to pre-pandemic capacity — saw ~14% higher passenger volumes, pulling some discretionary travel away from hotels. Even so, hotels retained pricing strength relative to pre-pandemic norms.

Record-high ADR helped operators offset inflation, but rising costs created margin pressure. Labor shortages persisted, with hotels reporting ~17 job vacancies per 100 rooms (up 12% YoY), forcing wage increases across housekeeping and front-of-house roles. Insurance and utility costs rose as well, keeping expense growth slightly ahead of revenue growth.

Performance relative to 2019 varied by property type:

Group travel outlook was favorable, with 2025–26 pacing metrics above 90% of pre-COVID norms. International inbound travel improved meaningfully — with strong growth from Europe and Latin America — though Chinese tourism remained below 2019 levels.

The extended-stay subsector remained one of the strongest performers in commercial real estate. Key metrics include:

Extended-stay properties continued to appeal to infrastructure project workers, disaster-response needs, relocating families, and corporate travel — providing a durable base that insulated the segment from leisure volatility.

Hotel investment volume slowed in 2025 due to higher borrowing costs and broader macro uncertainty. Financing was more expensive and required more equity, leading to fewer deals. Lenders commonly imposed 50–60% LTV caps for acquisitions, especially for full-service hotels.

Despite tighter underwriting, limited-service and extended-stay hotels remained liquid, with cap rates generally in the 7–8% range. Premium resort assets also continued trading at healthy valuations, supported by persistent demand for high-end leisure travel.

Distress remained modest compared to office. CMBS delinquency rates for hotels hovered around 4–5%, only slightly elevated. Some urban assets that struggled during 2020–2021 were sold out of foreclosure, but these cases were isolated. Many institutional and family-office investors began positioning for a potential upcycle in 2026, anticipating rate cuts and steady demand.

Hotel REITs had a volatile year tied to rate movements, but most restored dividends as operating cash flows normalized.

Regulatory developments in 2025 tended to support hotels indirectly:

These policy shifts reduced competitive pressure from unregulated accommodations, supported international travel, and nudged operators toward modernization.