The global hospitality and real estate sectors enter the final quarter of 2025 with an unmistakable theme — fragile optimism. While markets push toward new highs and capital costs begin to ease, sentiment across hotels, REITs, and foreign economies remains cautious. The story of 2025 isn’t one of collapse or exuberance, but recalibration — a balancing act between resilience and realism.
Hotel owners, investors, and lenders are learning to operate in a “flat is the new up” environment. REITs, while showing marginal improvement, continue to lag the broader equity market. Meanwhile, the global economic picture remains clouded by inconsistent data, political turbulence, and divergent growth forecasts.
This environment is shaping a hospitality sector that is both hopeful and hesitant — poised for recovery but constrained by uncertainty.
REIT Market Overview: A Disconnect Between Rates and Returns
The REIT market’s story in 2025 has been one of underperformance despite improving conditions. Year-to-date, REITs are down approximately 0.6%, while the S&P 500 has gained over 15%, pushing to new all-time highs. Despite a slight uptick in September (+0.4%), the sector continues to lag—underperforming the broader market by roughly 1,510 basis points year-to-date.
Easing Borrowing Costs but Stalled Momentum
The data shows that REIT BBB-rated borrowing costs have fallen by 22 basis points since Q2, with all-in borrowing costs on 10-year REIT BBB paper now at 5.10%. The 10-year Treasury yield has edged down 11 basis points, while spreads have compressed by a similar amount—suggesting improved access to capital and lower financing costs.
However, investor sentiment has not improved in parallel. Despite these favorable shifts, the average REIT FFO yield sits at 6.40%, just 127 basis points above the BBB yield. The narrowing spread underscores that risk appetite remains constrained—investors demand more assurance before re-engaging in the sector.
Discounted REITs Outperform Premiums
Interestingly, data continues to support that REITs trading at significant discounts to NAV have been outperforming their premium peers. Over the past 12 months, REITs trading at a 20% discount posted median returns of +8.8%, compared to +4.7% for those trading at a 20% premium. This divergence reflects market discipline—investors reward undervalued, fundamentally sound companies rather than chasing growth narratives.
For hotel REITs specifically, the challenge remains even more acute. With hotels occupying the lowest range of FFO multiples across sectors, investor enthusiasm remains muted. Take-private activity, once seen as a potential catalyst, has struggled to gain traction amid limited buyer appetite and macro uncertainty.
Hotel Industry Sentiment: Stagnation and Selectivity
At the recent Lodging Conference, industry tone could be summarized in two words: fragile and frustrated. While debt availability and capital liquidity have improved, fundamental demand growth remains stagnant.
“Flat is the New Up”
Across most hotel operators, the consensus is that the next 12 months will be low or no growth in both ADR (Average Daily Rate) and RevPAR (Revenue per Available Room). Leisure demand is showing signs of fatigue, and corporate travel has yet to return to pre-pandemic momentum. Owners and operators alike expressed muted confidence, echoing that “it’s tough”—a phrase repeated throughout conference discussions.
Transaction Activity and Capital Availability
Despite soft fundamentals, transaction activity has ticked up, driven by more attractively priced debt and more realistic seller expectations. Deals exceeding $200 million are crossing the finish line again, though buyers are highly selective. Most deals begin to “pencil” at 8.0%–8.5% cap rates, where leveraged returns begin to look compelling.
Debt markets remain open—with SOFR+250-300 bps pricing common and all-in rates in the 6%-7% range. However, investors remain patient, preferring to deploy capital into sectors with stronger thematic conviction, such as data centers or industrial real estate.
Frustration Over Brand Proliferation
A recurring complaint among hotel owners at the Lodging Conference was the continued proliferation of new hotel brands, which many see as unnecessary and confusing to both guests and investors. Hilton recently introduced its 25th brand, the Outset Collection, joining a growing list of recent rollouts such as Tempo by Hilton, Motto by Hilton, and Spark by Hilton.
Owners expressed that while these new concepts are marketed as innovative or lifestyle-focused, they often dilute brand equity rather than enhance it. Many feel the strategy is more about large hotel brands expanding their franchise portfolios and fee structures than improving owner economics or addressing operational challenges.
This sentiment was widespread among conference attendees, who voiced frustration that new brand introductions have done little to stimulate demand or strengthen property-level profitability. Instead, they add complexity to an already crowded marketplace—one where differentiation is increasingly difficult, and loyalty fragmentation continues to rise.
Macroeconomic Divergence: Data and Doubt
While REITs and hotels grapple with fundamentals, the macroeconomic backdrop remains uneven. The Conference Board’s forecast projects U.S. GDP growth at just 1.6% for 2025, lagging behind Europe—a projection that many analysts find questionable given Europe’s ongoing structural and political challenges.
Fed vs. Conference Board: A Tale of Two Forecasts
By contrast, the Atlanta Fed GDPNow model estimates Q3 GDP growth at 3.8%, suggesting a much stronger near-term performance. For the Conference Board’s pessimistic annual projection to materialize, Q4 GDP would need to turn negative, an unlikely scenario given recent consumer resilience and investment trends.
A more moderate outlook seems appropriate—acknowledging slowing growth without forecasting contraction. For hospitality, this implies a stable if unspectacular backdrop: steady domestic demand but limited tailwinds from international travel.
Implications for Hospitality Investors: A Market of Selective Opportunities
As 2025 unfolds, investors face a paradoxical environment—lower financing costs but limited conviction. The debt markets are open, cap rates are attractive, and yet, investors remain cautious.
Easing Debt Costs Create Breathing Room
The modest decline in REIT borrowing costs provides breathing room for owners facing maturities or considering refinancings. For hotels, where debt yields hover around 11-12%, this flexibility is invaluable. However, equity investors are still demanding strong narratives—cash-flow visibility, management alignment, and local market depth.
Storytelling and Fundamentals Matter More Than Ever
With broad-based enthusiasm absent, deals must “check every ”box”—reliable cash flow, operational upside, and compelling stories to justify investment committee approval. Thematic plays, such as urban repositioning or group-focused luxury assets in convention-heavy cities like Las Vegas and Chicago, continue to attract attention.
Yet, as September data revealed, RevPAR fell 2.4%, marking one of the sharpest monthly declines since 2010 (outside the pandemic). Occupancy softness continues to drag on performance, reminding sellers that liquidity windows may not stay open forever.
Global Travel and Economic Fragility
Foreign travel remains a key uncertainty for the U.S. hospitality sector, accounting for nearly 30% of room revenue annually. Yet, economic and political instability in key source markets threatens inbound tourism.
- France: 2025 visits to the U.S. projected at 1.62 million, down 5% from 2024, driven by pension reform turmoil and sluggish growth.
- United Kingdom: Visits expected to rise 3.6%, though political instability and weak leadership could cap momentum.
- Japan: Despite political transitions, a weak yen continues to suppress outbound travel, with visits to the U.S. still 50% below 2019 levels.
The takeaway is clear: global headwinds and unreliable data from major economic forecasters complicate travel forecasts. The hospitality sector’s fortunes are increasingly tethered to domestic stability rather than global demand.
Recalibration, Not Retreat
The hospitality and REIT sectors in 2025 embody fragile optimism. Despite macro and micro headwinds—from cautious investors to uneven international travel—underlying stability persists. The easing of capital costs, improved transaction flow, and resilience in select markets hint that this period of adjustment may lay the groundwork for healthier growth ahead.
The question for investors is not whether recovery is possible but whether the fundamentals, capital, and conviction can finally align to reignite confidence.
If you’re navigating these shifting dynamics and seeking strategic insights into hospitality or real estate investment, our team at NewGen Advisory is here to help. We offer expert advisory services designed to help investors identify opportunity amid uncertainty and capitalize on emerging trends in a recalibrating market.
If you’re navigating these shifting dynamics and seeking strategic insights into hospitality or real estate investment, our team at NewGen Advisory is here to help. We offer expert advisory services designed to help investors identify opportunities amid uncertainty and capitalize on emerging trends in a recalibrating market. Contact us today to start a conversation about your next move in hospitality investment.