Navigating the U.S. Hotel Sector: Where Growth and Risk Collide in 2025

The U.S. hotel sector in mid-2025 sits at a precarious crossroads. While occupancy rates and RevPAR are inching toward pre-pandemic levels, the path to full recovery remains uneven, riddled with macroeconomic headwinds and stark disparities between property classes and regions. For investors, this is a moment to parse vulnerabilities with precision and capitalize on structural shifts that favor resilience.

The Fragile Recovery: Metrics and Market Divides

The sector's trailing 12-month occupancy rate stands at 63.1%, just 2.4 percentage points below 2019's peak. Yet this average obscures a fractured reality. Luxury and upper-upscale hotels—like those in Las Vegas or New York—have clawed back to the high 60s in occupancy, buoyed by robust business travel and record room rates. Meanwhile, midscale and economy properties lag at mid-50s, their pricing power stifled by inflation and competition from short-term rentals.

RevPAR growth, at ~2% for 2025, is similarly bifurcated. Luxury segments are driving the gains, with RevPAR up 4.2% year-over-year, while midscale properties struggle at 1.9%. ADRs for luxury hotels now exceed $250, with New York City's luxury properties hitting record highs due to Airbnb restrictions. Conversely, Phoenix and Anaheim saw double-digit RevPAR declines in April .2025, victims of post-2024 event demand normalization.

Vulnerabilities: Costs, Cycles, and Consumer Caution

The sector's near-term risks are manifold. First, cost pressures threaten margins. Rising insurance premiums (due to climate-related disasters), wage inflation, and potential tariffs on agricultural imports are squeezing profitability. Even as RevPAR grows, expenses are outpacing revenue, a trend likely to persist unless demand surges further.

Second, macroeconomic uncertainty looms large. A 0.5% rise in unemployment to 3.9% in April .2024 hints at softening labor markets, which could curb both business and leisure travel. A recession—whether mild or severe—would hit hotels hardest in suburban and small-town markets, where occupancy growth remains anemic.

Finally, supply dynamics pose a double-edged sword. While limited supply in key markets like Orlando and Las Vegas supports pricing power, global hotel brands are aggressively expanding upscale and extended-stay formats. This could lead to oversupply in secondary markets if demand falters.

Opportunities: Where to Double Down (and Where to Bail)

The path to profit lies in targeting segments and geographies that align with structural tailwinds:

1. Luxury and Extended-Stay Properties:
   These segments are outperforming on multiple fronts. Luxury hotels, with their pricing flexibility and demand from high-income travelers, have RevPAR 3.8x that of economy properties. Extended-stay hotels—used by nurses, project crews, and relocating families—are maintaining occupancies 10% above the industry average.

Investment play: Look for brands like Marriott's TownePlace Suites or Hilton's Home2 Suites, which are scaling in high-growth urban and suburban areas.

1. Event-Driven Markets:
   The 2026 World Cup and 2028 Olympics are catalysts for mid-term RevPAR growth, particularly in host cities like Los Angeles and Dallas. Orlando's success with new theme parks and group bookings shows how destination-driven demand can offset broader economic softness.

2. Coastal Urban Markets:
   New York, Washington D.C., and New Orleans are thriving due to strong business travel and event-driven demand. These markets also benefit from constrained supply, limiting competition and supporting rates.

The Investment Shift: From Quantity to Quality

The sector's investment climate reflects this bifurcation. Hotel investment volumes fell 11.5% in 2024, with buyers increasingly favoring quality over quantity. Institutional investors are prioritizing urban luxury assets and extended-stay portfolios, while avoiding suburban and small-town hotels exposed to rising vacancies.

For individual investors, this means:
- Avoiding regions like Phoenix and Anaheim, where post-event demand has yet to stabilize.
- Staying cautious on economy hotels, which lack pricing power and face stiff competition from Airbnb.
- Focusing on REITs with diversified portfolios (e.g., Marriott Vacations Worldwide or Hyatt) that balance luxury and extended-stay exposure.

Conclusion: Caution Meets Conviction

The U.S. hotel sector isn't a uniform opportunity—it's a mosaic of winners and losers. While luxury assets and event-driven markets offer growth, the broader sector remains vulnerable to cost inflation and macroeconomic headwinds. Investors who bet on quality, location, and resilience will thrive, but those chasing yield in undifferentiated segments may find themselves in a liquidity trap.

As we edge toward 2026, the mantra is clear: invest in the sectors and locations that can weather both demand cycles and cost storms. The hotels that survive—and profit—will be those built for the long game.