Optimism for the Hotel Investment Market

Despite Headwinds, Topline RevPAR Is Expected to Grow Through the Remainder of 2025 into 2026

By McKenna Luke, MAI, Managing Director, at Partner Valuation Advisors | Published here and GlobeSt.com, on March 13, 2025.

The hospitality sector is enjoying renewed interest from investors, with more deals in the pipeline, increased refinancings, and improved transaction volume. While the industry still faces challenges, optimism prevails for modest growth over the next year.

Anticipated Headwinds and Tailwinds to Hospitality Performance

The general consensus is that topline RevPAR will grow modestly through 2025 and into 2026, albeit likely below inflationary levels. On the positive side, demand for both business and leisure travel remains robust or continues to rebound depending on the segment. Leisure travel remains a cornerstone of the new demand mix, although somewhat bumpy in the last four years given the pent-up demand for leisure travel, deficit of international travelers to the US, and reduced spending within the economy and midscale chains due to inflationary pressures and economic uncertainty. A continued return-to-office movement and lower debt costs bode well for commercial travel to increase in both frequency and length of stay. Convention center bookings are strong for 2025/2026 and large-scale events such as the World Cup should drive demand.

However, expenses are expected to outpace RevPAR gains, as climate events continue to push insurance rates higher and changes to immigration and trade policy impact the cost of staffing and goods. Although revenues have met or exceeded 2019 levels, total profitability, especially when considering inflation adjustments, remains below the pre-pandemic figures for a number of assets.

While hotel operators and owners are embracing AI and other tech to increase efficiency, they remain focused on human connection with guests as a cornerstone of the industry. AI and innovation can reduce costs by improving scheduling and staffing efficiency; boost overall revenue through rate adjustments or F&B revenues; and free up hoteliers to interact more often with guests. A myriad of other solutions on the horizon will help increase profit and increase connection with guests. Operators who sit on the sidelines and ignore AI will not only decrease the guest experience but leave money on the table.

While the cost of debt remains elevated, tightening spreads and increased availability of debt have and will support transactions and refinancing. Many investors have begun to move off the sidelines and are no longer waiting to get deals done.

Historically, hospitality has not been the darling of real estate investment due to higher perceived risk and volatility. However, hospitality assets offer the ability to combat inflation with daily rate changes. This, along with hospitality’s current performance relative to other asset classes—especially office—has revigorated interest in the hospitality sector over the last two years. As an asset class, hospitality offers both yield and growth, especially given the industry’s desire to continue to innovate, drive revenue in creative ways, and embrace innovation for cost savings. Smart investors have realized there are portions of hospitality that are less risky, such as extended-stay, which has driven somewhat of a hybrid investor pool.

Hot Hospitality Segments 2025

As we look into 2025 and beyond, some specific sectors that are expected to perform well include extended-stay properties, outdoor experiential lodging, boutique and luxury hotels, and branded-residential.

Luxury demand remains strong and investor/lending interest in trophy assets or Single Asset Single Borrower (SASB) deals were a bright spot in 2024. Furthermore, the pricing ability within the luxury segment has combated rising costs, supporting an overall strong return.

The outdoor and experiential hospitality segment continues to grow since its relatively recent inception, with increasing institutional investment over the past 5-7 years. Prior to the pandemic, outdoor and experiential hospitality was limited to one-off “glamping” destination ranging from a tent without AC or heat to ultra-luxury, multi-bedroom units. The lack of definition and available data within the segment has resulted in a slow burn of investor interest and increased demand over recent years. Success in outdoor and experiential hospitality requires an understanding of past successes and failures within the segment, the ability to scale and retain a unique customer experience, and access to relevant data. Be sure to work with an experienced advisor in this unique space as data can be limited, seasonality and infrastructure requirements differ from typical hospitality, and barriers-to-entry can widely vary.

Extended-stay remains a targeted investment within the industry, especially given the higher profit margins and investor overlap with segments such as multifamily. Economy extended-stay has led the segment in terms of new developments and large portfolio transactions in recent years. Midscale extended-stay, a segment established within the last few years, is the newest path of growth and fits the niche between traditional extended-stay and economy extended-stay. While construction financing overall remains somewhat constrained, the lower construction costs and overall investment in both economy and midscale extended-stay should support continued pipeline growth. The only question is, will luxury, serviced, extended-stay be next? Or will this demand remain within the growing branded residence segment?

Hotel Construction Pipeline

Projections for new supply growth in 2025 should support stable or growing overall occupancy, while new supply may increase into 2026 or 2027. In the decade prior to COVID, 2010 to 2019, average supply growth was between 1 to 2%. Since the pandemic and even as recently as 2023 and 2024, supply growth was still down by half. New supply is expected to increase in 2025; however, projects under construction remains compressed outside of a few key markets such as Phoenix. Knowing the actual construction pipeline, which projects are financed, and which projects are almost shovel-ready will be an important distinction for investors in the near term. While construction costs and cost of debt can present hurdles, strong projects have been able to obtain financing in recent months.

Conclusions

With careful strategy, investors can capitalize on more transactions, new construction, and modest growth over the coming year. Seek out advisors with focused hospitality expertise who can support informed investment decisions with tools like feasibility and market studies. Consider engaging consultants with hotel experience to provide due diligence assessments and risk management services. Augmenting your strategy with a team of highly qualified experts will ensure you have the data you need to take advantage of the opportunities presented by this growing market.

LIGHTBOX-Episode 21: Private REIT Market Momentum

Dive into the latest insights on the private REIT market with Episode 21 of The CRE Weekly Digest by LIGHTBOX Private REIT Market Momentum.

Partner Valuation Advisors’ Brandon Nunnink and Eric Enloe, MAI, CRE, FRICS join podcast hosts @Manus Clancy, @Dianne P. Crocker, and @Martha Coacher. They break down the key trends shaping the commercial real estate landscape.

Here are the highlights you don’t want to miss:
📈 Explore how the bid-ask spread between public and private REIT markets is narrowing, signaling increased transaction potential.
💼 Gain a deeper understanding of cap rate trends for multifamily and industrial properties—and why some markets are rebounding faster than others.
🏢 Discover fresh opportunities in selective office investments, as suburban and central business district markets show varied recovery patterns. How is the shift in valuations impacting CRE investments?

Listen to Podcast

A Peek into the Economic Crystal Ball

The current U.S. economy could be best described as a mixed bag. The recently released Q2 real GDP estimate showed an annual rate increase of 2.8%. Yet, employment growth is starting to lag. Meanwhile, the Federal Reserve continues its higher-for-longer interest rate stance, wanting to be sure that inflation is on a downward trend before commencing any cutting.

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Partner Valuation Advisors Adds McKenna Luke to Lead National Hospitality Practice 

Chicago, IL, June 3, 2024 – Partner Valuation Advisors, a top 10 national appraisal firm, continues to expand its leadership team with the addition of McKenna Luke, MAI, who joins to lead the firm’s National Hospitality Practice Group. Ms. Luke will be responsible for driving the growth of the firm’s hospitality work related to appraisals, market studies, large portfolio engagements, and consulting assignments.

Ms. Luke has overseen and completed thousands of assignments spanning hospitality properties from a small, independently owned motel to the most expensive resort in the U.S. She brings extensive nationwide hotel consulting and valuation experience having worked in 45 states and valued roughly $9 billion of assets in 2023 alone, combining for a total of more than $30 billion in the last five years. 

“McKenna is a nationally renowned professional in the hotels and hospitality field, and we are thrilled to have her be part of our team,” said Partner Valuation Advisors’ Senior Managing Director, Eric L. Enloe, MAI, CRE, FRICS. “Her background in the hospitality area spans virtually every market, asset type, and stage of a project.” 

Ms. Luke has earned a reputation as a trusted advisor for hotel development and brings a deep understanding of hospitality markets, having consulted on complex assignments including portfolios, hotels, condo-hotels, resorts, resort residential, mixed-use, waterparks, golf, membership clubs, glamping, and experiential destinations. In addition to traditional hospitality work, she has conducted valuations of casino operations in Las Vegas, Atlantic City, and Pennsylvania, as well as ski resorts in California, Montana, North Carolina, and Canada.

“I look forward to leading the growth within the hospitality division at Partner Valuation Advisors in concert with industry-leading professionals spanning a multitude of asset types,” said Ms. Luke. “The industry has evolved beyond a stand-alone hotel to embrace a number uses in one box and creative offerings in the hospitality space. Our tech-forward and innovative solutions across numerous asset types will bring new approaches that are closely aligned with today’s industry needs.”  

Prior to joining Partner Valuation Advisors, Ms. Luke served as a Managing Director at HVS, where over a nearly 12-year period she directly completed or supervised thousands of appraisals throughout the Southwest and nationally, oversaw firm-wide appraisal standards, developed a training and development program, and managed client relations. 

Ms. Luke graduated summa cum laude from the University of Denver, from which she later earned an MBA. She holds numerous state-certified general appraisal licenses and is a Designated Member of the Appraisal Institute (MAI).

Seniors Housing Survey Lists Financing, Interest Rates as Concerns

Published in Connect CRE Publication on November 2, 2023 – With lots of investment dollars on the sidelines for Seniors Housing, Brian Chandler, senior managing director, shared a deep, comprehensive analysis of the recession-proofed sector, in a recent interview by ConnectCRE. The 2023 U.S. Seniors Housing Investor Survey Report is now available.

Read the entire article now.

Healthcare Real Estate Opportunities Beyond Medical Offices and Hospitals

Erik Hill, MAI, CRE, FRICS, authors an article in Globe St. Publication regarding healthcare investment insights.

Published in Globe St. Publication on November 13, 2023 – Investors looking for steady returns are checking out healthcare real estate for opportunities. While Medical Offices and Hospitals are the most common product types, the lesser-known alternative building types have historically generated higher returns. In this article, Erik Hill, MAI, CCIM, MRICS, Managing Director, shares healthcare investment insights on the opportunities, pros and cons, and financing landscape of the traditional and alternative property types. Take the 2023 U.S. Healthcare Investor Survey.

Read the entire article now.

VIDEO: CRE Deal Flow Expected to Rise in 2024

Eric L. Enloe, MAI, CRE, FRICS, went before Connect CRE’s cameras at the recent Connect Investment & Finance 2023 event.

Published in ConnectCRE Online Publication on November 14, 2023 – Compared to 2023, senior managing director Eric Enloe at Partner Valuation Advisors sees commercial real estate transactions increasing.

In the video, you’ll get more insights from Enloe, who went before Connect CRE’s cameras at the recent Connect Investment & Finance 2023 event.

View the video now.

Retail is Proving Resilient

December 2023 – Values for the retail asset class are faring better than others, but occupancy challenges persist. Managing Director Joe Miller, MAI, MRICS, shares retail market updates in the December edition of Scotsman Guide.

Click here to read the article.

Chandler Named Healthcare & Senior Housing Influencer

Brian L. Chandler, MAI, CRE, FRICS, is named in GlobeSt.com's annual picks for influencers in the senior housing and healthcare sectors.

Published in GlobeSt.com Publication on November 28, 2023 – Congratulations to our very own Brian Chandler, MAI, CRE, FRICS, Senior Managing Director for receiving the Seniors Housing Influencer Award from GlobeSt.com. Bringing more than 30 years of valuation experience and CRE perspectives, Mr. Chandler is not only a member of the firm’s national leadership team, but he also leads one of the most prestigious specialty teams of professionals serving seniors housing clients nationwide. In that capacity, he continues to navigate the nuances of this specialty sector by providing actionable insights. Mr. Chandler is a mentor and an integral part of Partner Valuation Advisors. We are very proud of his accomplishment.

Read the entire article now.