Hotel Cap Rates Stabilize: Transaction Volume Recovers in 2026

By Majid Radaei, RadCRE · 2026-03-11 · Industry Insights

Despite persistent interest rate headwinds, U.S. hotel cap rates have largely stabilized, averaging 7.8% in Q4 2025. Transaction volume saw a modest rebound to $28 billion annually.

U.S. Hotel Investment Sales Navigates Rate Stability

After a tumultuous 2023 and early 2024, the U.S. hotel investment market has shown signs of stabilization through the latter half of 2025 and into Q1 2026. While transaction volumes remain below peak 2021-2022 levels, a sense of price discovery has emerged, leading to a more consistent cap rate environment. According to MSCI Real Assets (formerly RCA), U.S. hotel transaction volume reached approximately $28 billion for the full year 2025, a modest increase from the $24 billion recorded in 2024 but still significantly down from the $57 billion seen in 2022.

Cap Rate Trends Across Hotel Segments

Analysis of Q4 2025 and Q1 2026 data indicates a general stabilization of cap rates, rather than a continued outward shift. The overall average U.S. hotel cap rate settled around 7.8% in Q4 2025, according to Green Street Advisors. However, significant variations persist across property types and geographies.

Notable transactions highlight the market dynamics. For instance, the sale of the 350-key Hilton San Diego Bayfront in early 2026 to a joint venture between a private equity firm and a large institutional investor reportedly closed at a cap rate in the low 7% range, reflecting buyer confidence in prime, high-barrier-to-entry markets. Conversely, portfolios of smaller, regional select-service hotels continue to trade at cap rates pushing into the high 8s and low 9s, often to experienced regional operators.

Financing Landscape and Debt Constraints

While cap rates have somewhat settled, the availability and cost of debt remain a primary determinant of transaction activity. Lenders, particularly regional banks and CMBS conduits, continue to apply stricter underwriting standards. For well-located, stabilized assets, senior debt pricing typically hovers around SOFR + 300-450 basis points. For value-add or transitional hotel assets, bridge lending remains prevalent but often comes with spreads of SOFR + 450-600 basis points, and lower leverage points (typically 60-65% LTV).

Majid Radaei, Founder of RAD Commercial Realty, notes,

"While the headline financing rates remain elevated with SOFR at ~4.31% and Prime at ~8.50%, the more critical factor for hotel deals today is the debt yield requirement. Lenders are focused on a deal's ability to service the debt, often demanding debt yields north of 9-10% for full-service properties. This, coupled with higher equity contributions, means bids on stable assets are tighter, and true value-add plays require more creative capital stacks or significant operational upside. This environment favors well-capitalized buyers and those with strong operating partners who can navigate a potentially short-term high interest rate environment."

Looking Forward: Modest Recovery Anticipated

Industry forecasts from STR and CBRE Hotels project a modest increase in hotel RevPAR for 2026, driven by continued leisure demand and a gradual return of business travel. This positive operational outlook, combined with pricing stability and the potential for a Federal Reserve rate cut later in 2026, could stimulate further investment activity. The distressed asset pipeline, though not as robust as some had predicted, is beginning to materialize, offering opportunities for opportunistic capital, particularly in assets with upcoming loan maturities or properties that struggle to refinance existing debt.

RadCRE specializes in hotel investment sales, strategic financing, and distressed asset acquisitions across all asset classes, leveraging its deep market insights and proprietary underwriting platform, RadCRE.ai, to identify attractive opportunities and structure optimal capital solutions for clients in this evolving market.

Tags: hotel investment sales, commercial real estate financing, hotel cap rates, real estate transaction volume, distressed hotel assets

Sources: MSCI Real Assets, Green Street Advisors, STR, CBRE Hotels, CoStar