Hospitality Sector Navigates RevPAR Headwinds & Regional Disparities

By Majid Radaei, RadCRE · · Market Updates

Despite a strong Q4 2025, the hospitality sector faces moderated RevPAR growth in early 2026, with STR reporting U.S. RevPAR up only 1.5% YoY in February, showcasing regional variances.

Hospitality Sector Navigates Moderated RevPAR Growth in Early 2026

The U.S. hospitality sector, following a robust performance in late 2025, is experiencing a more tempered start to 2026. While Q4 2025 saw significant gains, driven by strong leisure demand and returning business travel, early 2026 data from STR indicates a deceleration in RevPAR growth. For February 2026, U.S. RevPAR increased by a modest 1.5% year-over-year, largely attributed to a 0.8% rise in Average Daily Rate (ADR) and a 0.7% improvement in occupancy.

This slowdown is not uniform across all markets. Gateway cities like New York and Los Angeles continue to outperform, buoyed by international tourism and large-scale conventions. For instance, New York City reported RevPAR growth exceeding 3% in February, thanks to events and sustained corporate demand. Conversely, some secondary and tertiary markets, which experienced rapid growth post-pandemic, are now seeing flatter or even slightly negative RevPAR trends as supply additions catch up with demand.

Transaction Volume Remains Targeted Amidst Higher Capital Costs

While the operational environment moderates, investment sales in the hospitality sector remain active, albeit more selective. Investors are increasingly focused on value-add opportunities and assets in high-growth or supply-constrained markets. Recent notable transactions include Starwood Capital Group's acquisition of the W Nashville in Q4 2025 for an undisclosed sum, highlighting continued institutional appetite for luxury and lifestyle assets. Financing for such deals, however, remains subject to elevated interest rates, with bridge loans typically priced at SOFR + 300-600 bps and CMBS spreads ranging from T + 150-300 bps for stabilized assets. Lenders are exercising greater scrutiny regarding debt service coverage ratios and sponsor strength.

The supply pipeline is also a critical factor. According to CBRE, new hotel supply is projected to increase by approximately 1.7% in 2026, which, while below pre-pandemic levels, could put pressure on occupancy and ADR in specific submarkets, particularly in the select-service segment.

Forward Outlook: Navigating Macroeconomic Headwinds

Looking ahead, the hospitality sector faces several macroeconomic considerations, including persistent inflation, potential shifts in consumer spending habits, and the trajectory of interest rates. While leisure travel is expected to remain resilient, corporate travel may not return to 2019 levels for all segments, leading owners to strategically reposition properties to capture blended demand. The ability to manage operating expenses and adapt pricing strategies will be crucial for maintaining profitability in this evolving landscape.

RadCRE Perspective

When we analyze the current hospitality landscape, the devil is truly in the details. The headline RevPAR numbers mask significant internal stratification. We're seeing a clear bifurcation: urban core, luxury, and extended-stay segments continue to show robust demand elasticities, often allowing for ADR growth that outpaces inflation. However, the true challenge lies within the midscale and economy segments in oversupplied or less dynamic markets. These properties are grappling with both stagnant ADR and increased operating costs, leading to margin compression. For our clients, this means a rigorous focus on asset-level underwriting, leveraging our RadCRE.ai platform to stress-test various demand scenarios and expense assumptions. We're seeing solid opportunities in value-add plays where properties can be repositioned to capture higher-rated demand or in markets with clear, demonstrable barriers to entry. Don't be fooled by national averages; institutional-grade due diligence on specific submarket supply-demand dynamics and cost structures is paramount. Traditional lenders are pulling back on leverage for riskier assets, making creative capital stack solutions, like preferred equity or structured bridge financing, more relevant than ever for well-positioned deals. Majjid Radaei, Founder of RAD Commercial Realty

Tags: hospitality investment, RevPAR trends, hotel market update, commercial real estate financing, RadCRE perspective

Sources: STR, CBRE Research, CoStar, HVS, Commercial Observer, Starwood Capital Group