The post-pandemic recovery for U.S. hospitality is over. Moving into 2026, the hotel sector faces mounting financial and operational headwinds that are reshaping valuations, investment appetite, and overall market sentiment.

 

Supply Overhang and Market Pressure

There are around 117,000 hotels in the U.S., and with rate cuts prompting sales, estimates suggest that 5% of inventory could hit the market. That equates to nearly 5,850 new listings, a wave of supply that could further pressure values as buyers gain options. However, this does not account for the looming wall of maturing CMBS debt, which will bring additional forced sales.

 

While transaction activity is already subdued, it is now constrained by the bid-ask spread. Owners face rising capital costs, brand-mandated Property Improvement Plans
(PIPs), and refinancing hurdles, while buyers demand discounts to justify risk. Trophy assets still draw capital, but most deals are slowed, or stopped, by feasibility gaps.

 

As such, the hotel sector recorded transaction volume over $5 billion at the end of Q2 2025, which is a drop from the $6 billion noted in the same quarter of 2024. Most deals this quarter were driven by the luxury tier. A standout deal for this timeframe occurred in Phoenix, with a 950-room luxury property transacting for $755 million as part of a two-property portfolio. The portfolio totaled $865 million and was purchased by Ryman Hospitality Properties.

 

Macroeconomic Strain

The labor market has decreased with 911,000 fewer jobs through the first half of 2025. Meanwhile, consumer credit card debt has surged to $1.21 trillion, with a $27 billion quarterly jump and a $16 billion spike in July 2025 alone. This highlights depleted household cash reserves, particularly among low- and middle-income households, which drive midscale and economy hotel demand.

 

Consumer spending growth slowed to 3.7% in 2025, down from 5.7% in 2024, with signs pointing to weaker momentum ahead. Deloitte projects a 1.7% GDP contraction
in 2026, effectively placing the U.S. on recession watch. For the hotel segment, this means fewer bookings, shorter stays, and lower spend per guest.

 

Hotel Growth Cycle Stalls

RevPAR grew only 0.4% through July 2025, the slowest pace since 2010. ADR edged up 1.1%, but real growth slowed as inflation eroded margins. Occupancy declined 0.7%, marking five consecutive months of weekday softness. The drops in performance can be attributed to weekday occupancy falling, as well as a slowdown in international visitors.

 

Segment performance diverges sharply across the country. Economy hotels led the segment by recording a 5.2% RevPAR increase in July, followed by luxury hotels with 3% RevPAR growth. The increase in stays at economy hotels can be attributed to visitors seeking budget-friendly options, while group and corporate travelers aid the luxury tier.

 

Debt and Distress: The Refinancing Wall

The sector faces a $48 billion CMBS maturity wave in 2025–2026. Roughly $23 billion was refinanced during 2020–2022 at 3% to 4.5% rates, but borrowers now confront 6.25% to 7% debt costs, a 40% jump. Cash flow is being squeezed, and 39% of hotels with low DSCRs are already struggling.

 

As of August 2025, hotel delinquency hit 7.29%, and debt yields are compressing, forcing sales. Together with escalating PIP compliance costs, many owners are being pushed to sell.

 

Rising Defaults and Shifting Capital

Stress is not confined to hotels. FHA serious delinquencies rose to 10.62%, with 15%–25% spikes in Florida and Georgia due to higher taxes and insurance. This signals deep consumer stress and reduces demand for owner/user hotel deals.

 

Meanwhile, institutional players are quietly pivoting. Notably, groups like Peachtree, Vision HG, Spark GHC, ViaNova, and JDH are increasing exposure to multifamily, citing more stable 5%–10% annual rent escalations.

 

Development Pipeline is Slower than Before

The active construction pipeline has dropped to 136,000 rooms, the lowest in five years. Elevated borrowing costs—with SOFR 650–750 basis points on construction loans—are prohibitive for most developers.

 

There are 58,000 rooms under construction for the 25 largest hotel markets, which accounts for 38% of the national total. Metros like Nashville, Miami, Phoenix, and Dallas are standouts with the greatest potential for supply growth.

 

Additionally, most rooms in the development pipeline are in the limited service segment, accounting for about 70% of rooms under construction. This tier has taken over as it boasts lower operating and construction costs. Travelers have also begun to stay at these hotels more often due to their lower pricing, as well as their convenient locations in many metros.

 

A Reset Year Ahead

Moving forward, hospitality is expected to see a new change. Below are some of the main expectations for the sector.

 

• Transaction volume will rise, but it will most likely be driven by distressed sales as over-levered owners sell.
• The luxury and economy segments will continue to note the most activity, with corporate travelers aiding high-end demand and visitors on a budget seeking economy stays.
• International travel is expected to decrease, with inbound arrivals forecast to decrease by 9% at year-end.

 

Liquidity, optionality, and disciplined underwriting will aid the top performers moving forward. For opportunistic investors, distressed hotel sales may offer compelling entry points; meanwhile, owners without dry powder may feel the pressure to sell.