After a robust post-pandemic rebound, the hotel industry has hit an inflection point in 2025. Growth in key metrics is slowing or reversing, macroeconomic clouds are gathering, and investors and hotel brokers are recalibrating strategies—marking a pivotal moment between continued recovery and a potential downturn.
Introduction: The Market Turns
The U.S. hotel sector has entered a new phase in 2025. After two years of surging leisure demand and pricing power, the “easy” gains of the post-pandemic rebound are fading. Revenue metrics are flattening — and in some markets, outright declining — just as macroeconomic uncertainties (from persistent inflation to shifting travel behavior) begin testing industry resilience.
Consider this: only 35% of U.S. hotel markets saw RevPAR growth in June 2025, the weakest share since the recovery began. That marks a sharp departure from 2021–2023, when most markets posted steady year-over-year gains.
Hotel owners, operators, and investors now face a crossroads. The question isn’t whether the industry has momentum, but how to navigate a recalibration phase — where selective investments, sharper operations, and strategic positioning will define who thrives.
Cooling Market Fundamentals
Summer Slowdown
By mid-2025, U.S. hotel performance had clearly decelerated. In June, RevPAR fell 1.2% year-over-year as a minor ADR increase (+0.4%) failed to offset a 1.7-point drop in occupancy.
Only 35% of major markets managed positive RevPAR, highlighting an uneven playing field. During 2021–2022, the industry experienced what many called an “all-ships-rising” recovery — meaning nearly every segment and market was posting gains, buoyed by pent-up leisure demand and generous consumer spending. By contrast, today’s environment is more fractured: luxury resorts and major urban gateways are holding steady, while economy hotels and secondary drive-to destinations are showing softness.
Macroeconomic Crosswinds and Travel Shifts
International Travel Imbalance
Global travel flows are shifting. Inbound international visitation to the U.S. fell 3.4% in June, while outbound travel by Americans rose 0.6%.
Where are Americans going? European hot spots like Italy, Spain, and Greece have reported record-breaking U.S. visitor numbers in summer 2025, fueled by a strong dollar and pent-up demand for cultural tourism. Japan and South Korea have also seen surging inbound U.S. traffic as Asia’s reopening gathers steam.
This imbalance creates headwinds for U.S. hotels, particularly gateway cities like New York, Los Angeles, and Miami that rely heavily on inbound tourism.
At the same time, short-term rentals are gaining share. Airbnb recently reported that beach markets like Destin, FL and Scottsdale, AZ are among its fastest-growing destinations in 2025. With platforms offering entire homes at competitive rates, traditional hotels are fighting harder to capture budget-conscious leisure travelers.
Diverging Performance: Segments & Markets
Luxury and urban full-service hotels continue to outpace economy and midscale segments. For example, the St. Regis New York saw strong Q2 bookings from international leisure travelers, while economy chains in Midwest secondary markets posted RevPAR declines of 5–6%.
Even extended-stay, long a “steady eddy,” showed softness: occupancy slipped to 76.2% in Q2 — the lowest summer level since 2020. Still, extended-stay remains more resilient than many other categories.
Investor Sentiment: Cautious but Opportunistic
Public Market Signals
Hotel REITs posted median RevPAR –0.2% and EBITDA –2.5% in Q2, but select performers stood out. Xenia Hotels & Resorts, for instance, saw +22% EBITDA growth, thanks to its concentration in urban luxury assets.
Investors are deploying capital into three main categories:
- High-growth markets: Summit Hotel Properties’ joint acquisition of Sunbelt select-service hotels highlights investor appetite for fast-growing Southern metros like Austin and Nashville.
- Branded assets: Blackstone’s BREIT doubled down on Marriott- and Hilton-flagged properties, citing strong loyalty ecosystems as a buffer against volatility.
- Extended-stay: Choice Hotels’ Everhome Suites pipeline, backed by Apollo’s $500M facility, signals conviction in midscale extended-stay as one of the most resilient categories.
Development Pipeline: Slowing but Shifting
Conversions & Adaptive Reuse
Hotel conversions are booming: 1,336 in 2024—a record—with momentum continuing into 2025. But where is this happening most?
The Midwest and Southeast are leading the trend, especially in secondary cities where older independent hotels are being reflagged to midscale and upper-midscale brands. Chicago has seen a wave of office-to-hotel conversions, while Atlanta has emerged as a hotspot for brand reflagging, with economy hotels trading up to Hilton Tru and Marriott Fairfield banners.
On the West Coast, San Francisco’s recovery is fueling adaptive reuse projects in downtown — a byproduct of its office vacancy crisis. Developers are seizing the opportunity to convert distressed office assets into hotels aligned with demand from returning business and convention travel.
Outlook: Resilience with Realism
Industry consensus suggests a soft landing, not a collapse. STR projects ~+1% RevPAR growth in 2025 and a modest pickup in 2026. Limited new supply provides a buffer, preventing oversaturation.
Swing factors include the pace of corporate and group travel recovery, the rebound of international inbound demand, and consumer confidence. Encouragingly, supply discipline means even modest demand gains could restore pricing power by 2026.
Bottom Line: Navigating the Crossroads
2025 is not a crisis year but a recalibration year. The winners will be those who:
- Protect margins through operational efficiency
- Pursue extended-stay and conversion opportunities
- Invest selectively in luxury projects in high-demand destinations
- Stay disciplined with capital until financing costs normalize
Hotels are on a plateau, not a peak. The next growth cycle may begin in 2026, but owners and investors who act strategically now will be best positioned to capture it.
Ready to Position for the Next Cycle?
The industry’s 2025 crossroads demand clarity, discipline, and foresight. Whether you’re an owner evaluating a hotel conversion, an investor weighing extended-stay opportunities, or a developer deciding whether to break ground, the right moves now can define long-term success.
Contact us today to discuss how we can help you sharpen your strategy, optimize your assets, and position for growth into 2026 and beyond.