Hospitality Real Estate in 2025: Investor Confidence Is Measured Amid Cost Pressures 

The hospitality sector is a study in contrasts—investor confidence had gained momentum heading into 2025 but shifting economic and policy conditions are beginning to cast uncertainty over the industry’s trajectory. U.S. hotel occupancy, ADR (average daily rate), and RevPAR (revenue per available room) are projected to climb, with urban hotels expected to outperform due to group and business travel. CBRE forecasts a 2.8% RevPAR increase for urban hotels, slightly exceeding the 2% national average. 

Yet, beneath the surface, headwinds have emerged. While revenue gains are expected, rising costs and evolving demand patterns are putting pressure on margins. New challenges—ranging from policy shifts to global trade tensions—are introducing fresh uncertainty, leaving many in the industry watching closely for potential disruptions. 

Despite these risks, investors continue to target high-end urban and resort assets, focusing on properties with proven revenue fundamentals and long-term demand resilience. But with market conditions evolving, adaptability will be key in the months ahead. 

Hotel Investment Stabilizes After a Slower 2024 

Although managers of REITs highlight strategic caution, broader investor sentiment remains bullish, particularly in high-demand urban and resort markets. After a slower 2024, where total hotel transaction volume declined compared to 2023, investment activity showed signs of renewed momentum toward year-end. Total U.S. hotel transaction volume fell by approximately 20% in 2024 compared to 2023, reflecting a slowdown in investment activity. However, Q4 2024 saw a 20% year-over-year increase in transaction volume, signaling renewed investor interest heading into 2025.

According to CBRE’s 2025 U.S. Hotel Investor Intentions Survey, 94% of respondents plan to maintain or increase their hospitality investments this year—a notable jump from 85% in 2024. Investor appetite is strongest for upper-upscale and luxury properties, particularly in high-demand urban and resort locations. 

Interestingly, this survey was conducted before the announcement of new tariffs and other policy shifts that have since clouded the consumer and business outlook for 2025. Will investor appetite hold in the face of these uncertainties? 

LightBox Tracks 2025 Hotel Investments 

LightBox tracked 81 hotel transactions in 2025 thus far through mid-March, with nearly all sales falling within the seven-to-nine-figure range (however, purchase prices were not disclosed for some deals). Among the transactions with available historical pricing data, eight hotels appreciated in value, while six were classified as depressed sales, selling for less than their prior purchase price. 

Appreciation Trends 

Several hotel properties saw significant appreciation, reflecting strong investor confidence in select markets.

• The Holiday Inn Express & Suites Jacksonville Beach (FL), which was acquired by PH Lodging Jax Beach LLC for $8.4 million, a 572% increase from its prior sale at $1.25 million. 
• Days Inn by Wyndham in Reynoldsburg, OH, changed hands for $5.45 million, marking a 221% increase over its previous purchase price of $1.5 million.
• The PGA National Resort in Palm Beach Gardens, FL, saw a near 95% appreciation, selling for $425 million, up from $217.9 million when Brookfield Asset Management last purchased it. 

Price Adjustments and Market Challenges

Despite pockets of strength, certain properties struggled to retain value.

• Embassy Suites Lynnwood (Lynnwood, WA) – The largest percentage decline, dropping 50.8% from $36.6 million to $18 million. This illustrates a substantial market correction. 
• Westin Washington, D.C. City Center (Washington, D.C.) – A high-profile property that sold for $92 million, down 39.9% from its prior $153 million sale. This highlights softness in the urban hospitality sector. 
• Embassy Suites Nashville at Vanderbilt (Nashville, TN) – A notable sale in a strong market, yet still seeing a 13.3% decline from $66.3 million to $57.5 million. This adds a perspective on market-specific challenges. 

The 2025 hotel transaction landscape showcases a divergent market, where some properties command strong appreciation while others face pricing pressures. As investors continue to assess opportunities, hospitality real estate remains a sector of both high risk and high reward. 

Rising Costs Create Persistent Headwinds 

Despite investor confidence in the hospitality sector, rising costs continue to pressure profitability and reshape investment strategies. Labor shortages remain a critical issue, with the American Hotel & Lodging Association (AHLA) reporting that 70% of surveyed hotels are still struggling with staffing gaps, even as wages rise. Higher labor costs, combined with increased expenses for construction, renovations, and operational overhead, are squeezing margins—particularly for full-service hotels that rely on a high-touch guest experience. 

Capital expenditures are climbing as well, with higher interest rates driving up borrowing costs for both new development and property upgrades. Additionally, 65% of hotel investors cite weakening demand as a top concern, a sharp increase from 46% last year, reflecting growing uncertainty around consumer and corporate travel trends. 

While these cost pressures create challenges, they are not slowing down investment altogether—they are simply reshaping where capital is flowing.

Occupancy Rates Rebound but Business Travel Evolves 

Hotel occupancy in the U.S. is expected to reach 63.38% in 2025, inching closer to pre-pandemic levels but still 2.42 percentage points below the 2019 peak of 65.80%. While this marks a strong recovery from the historic 43.89% low in 2020, the incremental gain over 62.97% in 2023 suggests that business travel is returning in a new form, rather than at full pre-pandemic volume. 

Corporate travel policies have become more selective and cost-conscious, prioritizing essential trips and blended leisure-business travel over routine corporate travel. At the same time, the U.S. is experiencing a decline in international tourism, driven by economic policies, trade disputes, and diplomatic tensions. Tourism Economics now projects a 5.1% drop in foreign visitors this year, reversing earlier growth forecasts and resulting in an estimated $18 billion in lost foreign tourist spending. 

Airlines are already feeling the impact. Leading carriers have warned of weaker international travel demand, citing both economic uncertainty and policy-driven disruptions. In mid-March, Delta Air Lines CEO Ed Bastian noted a pullback in corporate spending and rising consumer uncertainty, which could also dampen hotel demand. 

For CRE investors and developers, the shifting dynamics of business and international travel emphasize the need for targeted, strategic investments in hospitality. 

“The next phase of hospitality investment will be about identifying assets that can capture shifting corporate and leisure travel patterns while navigating cost pressures,” said Manus Clancy, head of Data Strategy at LightBox. “Investors who align with these trends will be best positioned to maximize returns in a market that’s still finding its footing.” 

REIT Earnings Reflect Growth Amid Strategic Caution 

As REIT earnings reveal, hospitality investment strategies are adapting to shifting market dynamics—balancing revenue gains with rising operational costs and margin pressures. 

• Apple Hospitality REIT achieved a 2.7% year-over-year RevPAR increase in Q4, driven by steady improvement in business transient demand. However, despite these gains, the sector experienced a lack of notable mergers and acquisitions, indicating a cautious investment environment.
• Host Hotels & Resorts saw a 3.3% increase in comparable hotel Total RevPAR, primarily due to improvements in food and beverage revenues driven by group business. However, the company faced challenges such as increased wages and inflationary pressures, which impacted operating profit margins.
• Summit Hotel Properties reported a 1.6% increase in same-store hotel EBITDA to $252.5 million but experienced a slight contraction in hotel EBITDA margins by 18 basis points to 35.5%.
• Marriott International lowered its 2024 profit forecast due to sluggish domestic travel demand in China, overshadowing strong international and group demand.

“Hospitality investors are taking a strategic approach,” noted Clancy. “They’re analyzing performance metrics and adjusting portfolios to maximize long-term returns, whether that means doubling down on high-performing assets or offloading properties that no longer fit their strategy.” 

High-End and Resort Markets Remain Investor Favorites 

Among urban markets, central business districts (CBDs) have emerged as the top choice for incremental hotel investment, with 41% of surveyed investors favoring these locations. New York City remains the most attractive investment market for the second consecutive year, driven by limited new hotel supply, short-term rental restrictions, and strong consumer demand. San Francisco ranked as the second-most preferred market, followed by Dallas. 

Resort markets are also attracting significant investor interest, with 33% of respondents prioritizing these locations. The resilience of leisure travel and corporate retreats, combined with the continued recovery of international tourism and large-scale events, is reinforcing the sector’s long-term appeal. 

“The demand for high-end hospitality assets remains resilient, particularly in prime business districts and leisure destinations,” Clancy said. “Investors are looking for properties that align with long-term travel trends and have strong revenue fundamentals.” 

Resort and Experiential Hotel Developments

• Loews Hotels & Co. has committed $1 billion to develop 2,000 new hotel rooms in Orlando, in partnership with Universal Orlando Resort. The project supports the highly anticipated Epic Universe theme park, set to open this year, reinforcing a broader trend toward integrated hospitality experiences. 
• Extell Development has secured up to $1.3 billion in financing to construct “The Torch,” a 1,067-foot-tall mixed-use hotel in Manhattan’s Theater District. Featuring 825 rooms, an observation deck, and a 260-foot thrill ride, the project exemplifies the industry’s shift toward experiential hospitality. 
• The $1.2 billion VAI Resort in Glendale, Arizona, set to open by late 2025, will include four hotels, an indoor-outdoor concert venue, and the first-ever Mattel Adventure Park, featuring a Hot Wheels roller coaster and a life-size Barbie Dream House.
• The Oasis at Lakeport resort in Missouri is positioning itself as a multi-experience destination, combining a Marriott hotel, a water park, and amusement attractions. 

The surge in destination-driven developments reflects a broader shift in hospitality investment. Hotels are no longer just places to stay; they are becoming attractions themselves, designed to capture the evolving preferences of travelers who seek immersive experiences over traditional lodging. 

Underperforming Hotels Find New Life as Residential Conversions Surge 

With shifting demand in hospitality and a growing need for housing, underperforming hotels are increasingly being converted into residential spaces. Developers are targeting urban markets where vacant hotels can be repurposed into apartments, often as part of city-led revitalization efforts. 

• In Baltimore, the former Embassy Suites Inner Harbor is undergoing a $30 million redevelopment into Redwood Place Apartments, bringing over 200 units to downtown. This project is one of four hotel-to-apartment conversions in the city, collectively adding more than 1,200 residential units.
• In Minnesota, an Edina hotel recently sold for $8.57 million and is being repositioned as residential housing to meet demand in the local market.
• The Woodland Flats in Kansas City is being converted from a former extended-stay hotel into 132 affordable apartments. 
• In New York City, the Waldorf Astoria—one of the most iconic hotels in the world—has been transformed into high-end residences, with its ultra-luxury condos finally opening to residents. Unlike most hotel redevelopments, which focus on affordability, the Waldorf’s conversion represents the top end of the market, catering to ultra-high-net-worth buyers willing to pay a premium for historic luxury living. 

The ability to repurpose these assets signals a fundamental shift in how investors and developers are thinking about underutilized properties.

Balancing Risk and Opportunity in 2025 

With high-end hotels and resort properties outperforming, the hospitality sector remains a key focus for CRE investors. However, the balance between opportunity and risk is shifting, with cost pressures and economic uncertainty requiring a more strategic approach. With these transformations underway, the question remains: How else will hospitality evolve to meet new market realities? 

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