As 2025 kicks off, U.S. hotel dealmakers are navigating a challenging market shaped by varying opportunities depending on location and property type.
That’s the assessment of **Dan Peek**, President of Hotels & Hospitality, Americas, at hotel brokerage **JLL**, which has facilitated over $60 billion in hotel transactions over the past six years. Peek anticipates the post-pandemic recovery will persist, with market performance shifting from Sun Belt states to major urban hubs.
Currently, Houston leads U.S. markets in performance, while New York and Chicago have shown promising growth. This trend may continue into 2025 as office attendance and corporate travel gradually normalize.
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### A Market of Contrasts
The U.S. hotel transaction market is highly segmented by geography and property type. Smaller properties under $50 million, typically select-service hotels, remain active thanks to local entrepreneurs and regional banks providing capital. On the other end of the spectrum, high-value trophy assets exceeding $250 million are attracting buyers, including real estate investment trusts (REITs) like Host Hotels and specialized investors like Trinity.
However, the mid-market segment—full-service hotels priced between $50 million and $250 million—has largely stalled. These properties face significant challenges, including reliance on institutional buyers who have better investment options, high interest rates that make financing difficult, and rising renovation costs, which have surged 20-40% since 2019. Labor expenses and property insurance hikes have further squeezed profit margins, even as revenue recovers.
As a result, 2025 is unlikely to see a flurry of deals. Many hotel owners are holding out for 2019-level prices, while buyers are factoring in today’s higher costs and lower profitability, creating a pricing standoff. Sellers are banking on potential interest rate cuts to make their asking prices more appealing. Peek remains optimistic, citing Federal Reserve officials’ projections of a half-point rate reduction in 2025.
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### Limited Supply Bolsters Hotel Rates
Despite these challenges, constrained supply could support the performance of existing hotels, making them attractive to buyers. Peek aligns with **CBRE’s forecast** of a compound annual supply growth of just 1% over the next five years, below the historical average of 1.6%.
“The inability to develop new properties is significant,” Peek said. While cities like Nashville, Austin, and Miami continue to see hotel construction, major gateway cities face significant barriers to development. For instance, New York City issued only one new hotel permit in Manhattan in 2024, for the luxury 130-room Little Nell, set to open in 2026. Similar restrictions are hampering development in Boston, San Francisco, and Los Angeles.
This limited new supply could help sustain higher room rates, even as U.S. hotel occupancy remains about 3% below 2019 levels. According to Peek, higher rates can often offset slightly lower occupancy, boosting profitability for hotel owners.
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### Washington D.C. Poised for Growth?
Looking ahead, Peek identifies Washington D.C. as a potential standout market in 2025. The city is expected to benefit from the presidential inauguration, a rebound in convention business, and potential federal policies mandating increased office attendance. Additionally, major corporate relocations, such as Boeing and Raytheon, could drive hotel demand in the region.
“Follow the money,” Peek advised. “New York used to dominate because that’s where the money was, but in 2025, business leaders may spend significant time in D.C. as well.”
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### Luxury Hotels and the Wealth Effect
Luxury hotels are expected to remain in high demand, buoyed by growing global wealth. “There are more millionaires and billionaires now than ever before,” Peek noted. This wealth is driving interest from sovereign wealth funds and family offices, which often invest in luxury hotels as both users and owners.
The economics of luxury hotel development have also improved, thanks to the rise of branded residential components, which are often highly profitable. As a result, luxury properties in markets favored by affluent business and leisure travelers are likely to thrive. Meanwhile, budget and economy segments may continue to struggle, reflecting the growing disparity between high- and low-income consumers.
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### Tracking Hotel Sector Performance
The financial performance of the hotel and short-term rental sectors is closely monitored within the **Skift Travel 200 (ST200)**, an index that tracks nearly 200 travel companies globally. This includes international and regional hotel brands, REITs, management companies, alternative accommodations, and timeshares. The ST200 provides a comprehensive view of the industry’s financial health, combining data from companies with a combined market value exceeding $1 trillion.
For more insights into the methodology behind the ST200 or to explore hotel and short-term rental sector performance, visit **Skift Research**.
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As 2025 unfolds, the U.S. hotel industry faces a mix of challenges and opportunities. While rising costs and high interest rates may temper deal activity, limited supply and strong demand in select markets could provide a foundation for growth. Whether it’s luxury properties catering to the ultra-wealthy or urban markets like D.C. poised for a rebound, the year ahead promises a dynamic landscape for hotel investors and operators.
Source: skift.com