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By McKenna Luke, MAI, Managing Director
As Q1 2026 comes to a close, the U.S. lodging landscape presents a mixed picture. Near-term demand has softened amid weaker consumer confidence, reduced international travel, and localized economic strain in select markets. Against this backdrop, industry forecasts for revenue per available room (RevPAR) remain within a ±1.5%, reflecting the uncertainty that continues to shape the current environment.
At the same time, supply remains well below long term averages across most markets, providing an important buffer against downside risk.
Major global events, including the World Cup, are expected to generate meaningful demand in host cities, offering temporary lifts to both occupancy and room rates. However, the impact is likely to be uneven, shaped by match schedules, host city dynamics, and training-site selections. As a result, performance will vary meaningfully by market, with some locations experiencing compression and average daily rate (ADR) lift, while others experience limited net benefit. Despite this variability, underlying fundamentals in many markets remain intact
Luxury and Extended-Stay Continue to Lead
Performance across lodging segments remains bifurcated, with luxury and extended‑stay assets continuing to lead the cycle, supported by resilient demand and sustained pricing power. Within the luxury and ultra‑luxury segment, hospitality remains central to the value proposition, as experiential offerings play an increasingly important role in preserving rate integrity.
Affluent consumer spending has proven durable, particularly for irreplaceable, destination-oriented hotel assets that foster emotional connections and repeat visitation. Wellness-focused luxury offerings remain firmly in a growth phase, while many traditional chain-scale segments are showing signs of maturity. Experience-driven demand continues to differentiate top-tier assets from the broader market and supports long-term value creation at the high end of the spectrum.
The K-Shaped Economy Shapes Hotel Demand
A persistently “K-shaped” economic backdrop continues to drive divergent performance across lodging segments. Economy and midscale assets remain under pressure, a trend likely to be exacerbated by higher gas prices, lingering inflation effects, and broader economic uncertainty. While overall consumer spending continues to support the hospitality industry, strong demand remains concentrated among higher-income travelers, contributing to ongoing softness in the economy segment.
Markets with outsized exposure to government demand, international feeder markets (including Canada), or business travel tied to softening industries experienced increased pressure in 2025. Policy uncertainty, shifting trade dynamics, sector-specific layoffs, and increasingly selective corporate travel budgets weighed on occupancy and pricing power across certain segments and locations.
Operating Costs Remain Elevated, Efficiency Improves
Elevated costs of goods following prior inflationary increases, combined with ongoing labor pressures, continue to challenge hotel operators. Despite these headwinds, many owners and managers have made meaningful progress in improving operating efficiency. Diversified revenue streams, including food and beverage, wellness and experiential programming, are helping offset margin pressure and reinforce the long-term value proposition of well-positioned hotel assets.
In this environment, hands-on asset management has become increasingly critical. Operational discipline and execution are being rewarded, contributing to more durable returns across high-quality portfolios.
Capital Markets Show Early Signs of Improvement
Capital markets conditions are gradually improving. Debt availability has become more competitive for well-structured deals, with many market participants reporting a 50 to 100 basis-point decline in the cost of debt through competitive bidding processes. Bidding activity for high-quality assets remains active, supported by underwriting standards that, while still disciplined, are less restrictive than in recent periods.
That said, diligence remains essential. The lack of sustained, above-inflation RevPAR growth continues to temper aggressive underwriting assumptions. While buyer-seller gaps persist in some cases, narrowing bid-ask spreads are beginning to unlock more transactable opportunities. Early signs of distress are emerging, particularly for assets facing significant renovation or PIP requirements amid elevated construction costs and increasingly discerning guest expectations. Upcoming loan maturities and refinancing needs are expected to drive a growing share of loan and transaction activity as the cycle progresses.
Transaction Activity Begins to Stabilize
Transaction volume in 2025 remained muted overall but improved meaningfully compared to 2024, supported by a stronger fourth quarter and a double-digit year-over-year increase. Lower volume continues to reflect the absence of large portfolio trades, with deal flow largely dominated by larger single-asset transactions.
While transaction activity remains below long-term norms, sentiment has turned more constructive. Long-term demand tailwinds, improving capital markets conditions, and better alignment between operating fundamentals and pricing expectations are laying the groundwork for increased liquidity. Looking ahead, the winners in 2026 are likely to be investors focused on asset quality and execution, as broad-based acceleration appears unlikely without clearer demand re-acceleration.
For information on obtaining an appraisal from our specialty hospitality team, please contact:
McKenna Luke, MAI
Managing Director - National Hospitality Practice Lead
[email protected]
303-704-2636
