The U.S. hotel industry has entered a pivotal year. Investor dissatisfaction is mounting, short-term rentals continue to chip away at specific market segments, and hotel transaction activity is beginning to stir after a prolonged lull. At the same time, performance varies dramatically by region, with some markets showing strength while others struggle under supply pressure. For owners and investors, 2025 is shaping up as a year that will demand sharper strategies, greater selectivity, and a willingness to adapt to shifting conditions.
Investor Pressure and the REIT Challenge
Hotel REITs remain under a microscope as shareholder frustrations grow louder. Sunstone Hotel Investors (SHO) is the most recent flashpoint. Activist investor Tarsadia Capital sent a letter to the board urging change, pointing out that while Sunstone’s assets are valued at around $12.12 per share—roughly $3.5 billion in real estate—the public markets have not rewarded shareholders accordingly. Investors see value trapped in the portfolio, but underperforming assets, heavy capital expenditure needs, and inconsistent cash flows complicate any take-private deal.
The situation draws parallels to Braemar Hotels & Resorts, which is also pursuing a sale. Unlike Sunstone, Braemar’s more concentrated luxury portfolio has been met with greater optimism. Still, the broader issue persists entire REITs are difficult to reposition in a way that satisfies both shareholders and prospective buyers. Investor patience is running thin, and boards will likely face increasing pressure to pursue sales, asset disposals, or strategic overhauls.
Short-Term Rentals Reshape Competition
While the REIT story plays out at the boardroom level, hotels face another growing challenge at the consumer level. Short-term rentals are gaining ground, particularly in rural, small-city, and extended-stay markets. AirDNA data shows that demand for short-term rentals grew more than 4% year-over-year in August, with rural and small markets posting double-digit increases. Forward booking trends for the fall and holiday season are also pacing ahead of last year, underscoring sustained consumer appetite for alternatives to traditional hotels.
This demand is not evenly distributed across the lodging spectrum. Luxury hotels and full-service urban properties continue to hold their ground. However, economy hotels and extended-stay operators are feeling the pinch, especially in markets where oversupply is already an issue. For many travelers, especially families or longer-stay guests, a short-term rental offers more space and amenities at a comparable or even lower price than two adjoining rooms at an economy chain. This dynamic does not threaten the hotel sector as a whole but represents a structural shift in price-sensitive and long-stay demand.
A Revival in Hotel Transactions
Despite these headwinds, there are encouraging signs in the hotel investment market. Transaction activity, which slowed earlier in the year due to tariffs and economic uncertainty, has begun to rebound with several high-profile sales. Blackstone recently acquired EAST Miami, Columbia Sussex added Denver and Westminster properties to its portfolio, and Eurostars Hotel Company entered the U.S. with acquisitions in Boston and Washington, D.C. Meanwhile, Canadian investor Knightstone Hotel Group made its first U.S. move with the Sheraton Pentagon City, and OTO Development purchased its first Texas property with Hyatt House Dallas/Uptown.
These transactions suggest that while buyers remain cautious about full REIT acquisitions, there is renewed appetite for individual hotels with strong fundamentals. Hersha’s former portfolio under KSL illustrates this well. Assets are being sold one by one, such as The Boxer in Boston, which went for $295,000 per key, and the St. Gregory in Washington, D.C., which sold for $188,000 per key. Investors are willing to pay for quality assets in strategic markets, even as broader portfolio-level deals remain more challenging.
Uneven RevPAR Recovery
Performance across regions underscores how selective investors must be. Nevada, once a leader, has been hit particularly hard, with RevPAR dropping sharply due to oversupply and weakening demand. The broader Southwest and Mountain regions are also struggling, as new development in places like Arizona and Colorado has created pressure on rates. In contrast, California continues to hold steady, with projected RevPAR nearing $132 by 2027, while Florida remains one of the most resilient states in the nation, supported by strong domestic leisure travel and steady international visitation.
This uneven recovery means investors and operators can no longer rely on broad industry trends alone. Markets like Florida and California offer opportunities for stability and growth, while regions with oversupply or slowing demand require a much more cautious approach. Selectivity is now a prerequisite for success in hospitality real estate.
Hotels at a Crossroads
The U.S. hotel industry in 2025 is defined by transition. Shareholder activism is forcing REITs to confront underperformance, while short-term rentals continue to reshape demand dynamics at the lower and extended-stay tiers. At the same time, the return of transaction activity highlights both opportunity and caution, as capital flows back into high-quality assets but hesitates around portfolio-level risk. Layered on top of this is a highly uneven regional RevPAR recovery, which will require investors to be sharp, selective, and disciplined in the months ahead.
For hotel owners and investors, the decisions made now will define outcomes in the years to come. If you are evaluating whether to sell, reposition, or hold onto your assets, the right strategy can make all the difference. As a nationwide hotel brokerage firm specializing in selling hotel assets, we help our clients navigate these shifts, unlock value, and connect with the right buyers.
Contact us today for a free consultation and discover how we can help you maximize the potential of your hotel portfolio.