Hospitality Sector Navigates Post-Pandemic Normalization Amidst RevPAR Shifts

By Majid Radaei, RadCRE · · Market Updates

STR reports U.S. RevPAR growth moderating to 3.5% in 2025, down from 8.2% in 2024, as luxury and upper-upscale segments continue to outperform select-service.

RevPAR Growth Moderates as Post-Pandemic Surge Evens Out

The U.S. hospitality sector is entering a phase of normalization following the robust post-pandemic rebound. While demand remains healthy, the aggressive RevPAR (Revenue Per Available Room) growth observed in 2022 and 2023 is steadily moderating. Recent projections from STR, a leading provider of market data to the global hotel industry, indicate that U.S. RevPAR growth is expected to fall to approximately 3.5% in 2025, a significant deceleration from the estimated 8.2% in 2024. This signals a return to more sustainable, albeit slower, growth patterns pre-dating the unprecedented disruptions of the past few years.

Segment Divergence: Luxury & Upper Upscale Sustain Momentum

Analysis of market segments reveals a continuing divergence in performance. The luxury and upper-upscale segments are demonstrating greater resilience and sustained growth. These higher-end properties benefit from less price-sensitive leisure travelers and an improving group business segment that often books higher-rated rooms and ancillary services. For instance, according to data from CBRE Hotels Research, luxury hotels in gateway cities like New York and Miami have regularly posted RevPAR gains exceeding 5% in late 2024 and early 2025, driven by strong group bookings and international tourism resurgence. In contrast, many select-service and extended-stay properties, which saw an initial boom due to domestic leisure travel, are now experiencing more competitive pricing pressures and slower RevPAR growth.

Transaction Volume and Capital Markets Landscape

The moderation in RevPAR growth, combined with persistent higher interest rates, has impacted transaction volumes in the hotel investment market. Buyers are facing elevated borrowing costs, with bridge loan rates for hospitality assets typically ranging from SOFR + 300-600 basis points, and permanent debt options like CMBS having spreads of T + 150-300 bps, depending on asset type and sponsor strength. This has led to a more cautious investment climate and wider bid-ask spreads. According to MSCI Real Assets, hotel transaction volume for Q4 2024 was down nearly 20% year-over-year, reflecting fewer mega-portfolio deals and stricter underwriting by lenders. However, well-capitalized institutional investors, such as Blackstone and Starwood Capital Group, continue to seek strategic acquisitions, particularly in value-add opportunities or underperforming assets in resilient markets.

RadCRE Perspective

"The hotel sector is undoubtedly recalibrating. While the headline RevPAR figures suggest a slowdown, the real story is in the nuances. We're seeing a clear flight to quality, where well-located, professionally managed luxury and upper-upscale assets continue to command strong pricing and demonstrate superior cash flow stability. For our clients, this means a rigorous focus on asset quality, brand affiliation, and market-specific demand drivers. We're also advising on creative capital stacks for acquisitions, often blending traditional debt with preferred equity or junior debt to achieve target returns without over-leveraging in this elevated interest rate environment. The opportunities exist, but they require a sophisticated eye and a deep understanding of lender appetites today."

– Majid Radaei, Founder of RAD Commercial Realty

Outlook and Future Trends

Looking ahead, the hospitality sector is expected to maintain positive, albeit single-digit, RevPAR growth. Key drivers will include the continued recovery of international travel, the return of corporate group business, and selective market strength. Operational efficiencies and a renewed focus on technology adoption to enhance guest experience and streamline operations will also be critical for sustaining profitability. Investors are increasingly evaluating ESG (Environmental, Social, and Governance) factors as part of their due diligence, recognizing their long-term impact on asset value and operational costs.

RadCRE assists clients in navigating these evolving market dynamics, from identifying high-potential hotel investment opportunities to structuring complex financing solutions that align with their strategic objectives and today's capital market realities.

Tags: RevPAR trends, hospitality investment, hotel market performance, commercial real estate financing, luxury hotel segment, CRE capital markets

Sources: STR, CBRE Hotels Research, MSCI Real Assets, CoStar