Hotel Cap Rates Stabilize Amid Transaction Rebound
By Majid Radaei, RadCRE · · Industry Insights
Q4 2025 saw hotel transaction volumes rebound, with cap rates for full-service hotels stabilizing around 8.5% and select-service at 7.8% nationally, signaling renewed investor confidence.
Hotel Investment Sales: A Look at Q4 2025 and Early 2026 Trends
The final quarter of 2025 marked a definitive turning point for the hotel investment sales market, with transaction volumes experiencing a notable rebound from the subdued activity seen earlier in the year. This resurgence was largely driven by a clearer outlook on interest rates and a greater alignment between buyers' and sellers' pricing expectations. Data from MSCI Real Assets indicates that hotel transaction volume in Q4 2025 reached approximately $12.5 billion, a substantial increase compared to the $8.8 billion recorded in Q3 2025, and nearly on par with pre-pandemic levels for the same period.
Cap Rate Dynamics Across Hotel Segments
Cap rates, a critical indicator of investor sentiment and asset pricing, demonstrated a trend of stabilization and, in some cases, modest compression in attractive submarkets. For full-service hotels, national average cap rates hovered around 8.5% in Q4 2025, a slight decrease from the 8.7% observed mid-year. This was largely influenced by significant portfolio transactions and trophy asset sales. For instance, Blackstone's sale of a portfolio of extended-stay hotels to Starwood Capital Group for approximately $600 million in Q4 2025 helped set pricing benchmarks, though specific cap rates for private deals are rarely disclosed. However, industry analysis suggests these types of transactions reflect strong demand for stable cash-flowing assets.
In the select-service segment, cap rates were generally lower, averaging around 7.8% nationally. This segment continues to benefit from operational efficiencies and a perceived lower risk profile, making it attractive to a broader range of investors, including private equity and high-net-worth individuals. Urban and leisure-oriented markets, particularly those with strong RevPAR growth trajectories, saw the most aggressive pricing.
Geographic and Asset Class Nuances
Regions displaying robust tourism recovery and corporate travel resurgence, such as central Florida, key Texas metros (e.g., Dallas and Austin), and select sunbelt markets, continued to attract premium pricing. Conversely, some gateway cities with slower business travel recovery or significant supply pipelines still presented opportunities for value-add investors, albeit at slightly higher cap rates, reflecting increased perceived risk.
Luxury and resort properties, while often characterized by unique deal structures, continued to command premium valuations. The sale of the Montage Healdsburg in Northern California in late 2025 for over $300 million underscored the enduring appeal of high-end leisure assets, despite higher operating costs and specific management requirements.
Forward Outlook and RadCRE's Role
The outlook for hotel investment sales in 2026 appears cautiously optimistic. While the Federal Reserve is expected to maintain a data-dependent approach, the sentiment for rate cuts later in the year, coupled with healthy lodging fundamentals (STR data continues to show positive RevPAR growth projections for 2026), bodes well for continued transaction activity. Lenders are also showing increased appetite, particularly for well-capitalized sponsors and stabilized assets, with typical bridge loan spreads currently in the SOFR + 300-600 bps range, and CMBS spreads tightening to T + 150-300 bps for strong deals.
"We've definitely seen a shift in investor psychology," comments Majid Radaei, Founder of RAD Commercial Realty. "The cap rate arbitrage that was challenging for much of 2024 has largely corrected, and sophisticated buyers understand current market dynamics. For hotel investors, it's about identifying submarkets with sustainable demand drivers and unlocking value through strategic repositioning or robust operational enhancements. We are actively advising clients on structuring optimal capital stacks, often combining senior debt with creative preferred equity solutions to maximize returns in this evolving landscape."
RadCRE guides clients through these dynamic market conditions, leveraging our deep expertise in hotel investment sales and commercial real estate financing to identify strategic opportunities and execute complex transactions, ensuring optimal outcomes for both buyers and sellers.
Tags: hotel investment sales, commercial real estate, cap rates, Q4 2025 hotel market, hotel financing, RadCRE, select-service hotels, full-service hotels
Sources: MSCI Real Assets, STR, CoStar, Commercial Observer, GlobeSt, Blackstone, Starwood Capital Group