U.S. Hotel Industry 2026: First RevPAR Decline Since 2020 Meets Record Pipeline

AHLA projects hotel guest spending of $805 billion in 2026. Hotel room revenue specifically reached approximately $101 billion in 2024. The industry sells nearly 1.3 billion room nights annually and generated $83.4 billion in direct taxes in 2024, including $26.0 billion in lodging-specific taxes. Total hotel industry wages and compensation reached $125.8 billion in 2024, projected at $128.5 billion in 2025 and approximately $131 billion in 2026.

Performance Metrics Show a K-Shaped Recovery

Full-year 2025 marked a significant inflection: occupancy fell to 62.3% (down 1.2% year-over-year), ADR reached $160.54 (up 0.9%), and RevPAR declined to $100.02 (down 0.3%), the first full-year occupancy and RevPAR declines since the pandemic. This compared to 2024's approximately 62.9% occupancy with ADR and RevPAR growing roughly 1.5% and 1.4%, respectively. Performance was distinctly K-shaped: luxury RevPAR grew 3% while midscale fell 2.8% and economy plunged 4.4%. Industry forecasters issued further downgrades for 2026, citing job market softening, policy uncertainty, and tariff costs as near-term consumer drags.

Pipeline Hit 720,000 Rooms as Conversions Reached a Record

The U.S. hotel supply encompasses approximately 60,000 hotels and 5.7 million rooms, with about 70% affiliated with branded chains. The industry faces a U.S. hotel construction pipeline of 703,001 rooms across 5,975 projects at the end of the second quarter of 2026 (Lodging Econometrics). Brand conversions hit a record 1,497 projects and 148,981 rooms, up 12% and 16% year-over-year respectively. Actual openings in 2025 totaled 640 hotels and 74,079 rooms (1.3% supply growth), with forecasts of 708 hotels and 80,034 rooms in 2026 (1.4%) and 824 hotels and 88,095 rooms in 2027 (1.5%).

Construction Costs Per Key Vary Dramatically by Segment

The most recent hotel development cost survey (based on 2024 budgets) reports median costs of approximately $167,000 per key for limited-service, $170,000 for midscale extended-stay, an estimated $180,000 to $220,000 for select-service, $300,000 to $500,000 for full-service, and over $1 million per key for luxury (reaching $2 million or more in top markets). Construction cost inflation moderated to 3.3% in 2024 (down from 8% in 2022 and 6% in 2023), though tariff uncertainty is injecting fresh cost pressure. Property Improvement Plan costs for branded select-service hotels average $18,000 to $25,000 per key.

Cap Rates and Transaction Activity

Hotel cap rates by segment in 2024 to 2025 range from 5.0% to 6.5% for luxury and upper-upscale properties in gateway cities, 7.0% to 8.5% for upscale and upper-midscale, and 8.0% to 10.0% or higher for midscale and economy. Industry surveys found 94% of investors plan to maintain or increase hotel investments in 2025, though a rising share expects cap rates to increase further. The buyer-seller bid-ask spread remains wide in many transactions.

U.S. hotel transaction volume reached $24 billion in 2025, up 17.5% year-over-year, driven by Fed rate cuts beginning September 2024 that reduced the overall cost of debt by approximately 300 basis points. Top markets included New York City ($3.7 billion, 29 trades), Phoenix ($1.5 billion), and Washington D.C. ($1.2 billion), with urban markets accounting for 43% of volume. The Major U.S. Hotel Sales Survey recorded 392 single transactions over $10 million totaling approximately $15 billion, with an average sale price of $211,000 per room, down 13% from 2024's $243,000 average, suggesting a shift toward smaller assets.

Franchise Fees and Brand Economics

Hotel franchise fees represent the second-largest operating expense after payroll. Typical structures include royalty fees of 5% to 8% of gross room revenue, marketing and reservation fees of 1% to 3.5%, and initial franchise fees of $45,000 to $150,500 depending on brand and room count. Total franchise-related fees increased 3.5% in 2024, outpacing both rooms revenue growth (2.7%) and total operating revenue growth (3.0%), with guest loyalty program costs growing fastest at 3.9%. Among major brands, Marriott International leads with approximately 1.7 million global rooms across 9,300 or more properties. Hilton added 100,000 rooms in 2024 and expanded systemwide rooms by 7.8%. Wyndham reached 903,000 global rooms with a record pipeline of 252,000 rooms. Choice Hotels grew domestic rooms to 505,601 (up 2.3% year-over-year), with its extended-stay portfolio surging 10.8%.

Labor Costs Surging While Extended Stay Dominates the Pipeline

Labor cost per occupied room reached $48.32 in 2025, up a striking 12.8% year-over-year from $42.82. Q4 2025 wage cost per occupied room spiked 21.1% year-over-year, with full-service properties seeing a 23.8% increase. Hotels are operating with 5.9% fewer employees than 2019 while paying 22.1% more in compensation. The national average hotel wage exceeded $23 per hour. Total hotel employment stood at 2.15 million in 2024, still roughly 200,000 short of 2019's 2.37 million.

Extended-stay hotels now account for 40% of all projects in the total U.S. pipeline, encompassing 2,468 projects and 250,754 rooms. Extended-stay demand has increased in 33 of the last 34 years, with an occupancy premium approximately 12 percentage points above the overall industry that widens during downturns. The global extended-stay market was valued at $57.7 billion in 2024, projected to reach $98.8 billion by 2030 at a 9.5% CAGR.

Implications for Feasibility and Valuation

The hotel sector faces a margin compression challenge where labor costs are surging 12.8% annually, franchise fees outpace revenue growth, and RevPAR posted its first non-pandemic-year decline. Yet transaction volume rebounded 17.5% to $24 billion as rate cuts improved debt markets, and extended stay (40% of the pipeline) offers a structural growth thesis. The glamping sector has emerged as an alternative hospitality format that competes with traditional hotels for experiential travelers. Wedding venues represent a hospitality-adjacent asset class with distinct revenue drivers and seasonality patterns. Hotel demand is shaped by the demographic and psychographic profile of the local market, including business travel density and tourism propensity. For feasibility analysis, the K-shaped performance divergence demands segment-specific projections rather than industry-average assumptions. Luxury RevPAR grew 3% while economy declined 4.4%, a nearly 750 basis point spread that renders blended industry metrics misleading. The record pace of brand conversions (up 16% year-over-year) signals that operators increasingly favor repositioning existing assets over ground-up development, reflecting both elevated construction costs and the risk-adjusted returns available through strategic rebranding. Labor cost modeling has become the single most critical variable in hotel feasibility pro formas, with cost per occupied room rising at more than 4 times the rate of revenue growth.

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Sources

1. AHLA/Oxford Economics, 2025 State of the Industry Report
2. AHLA, 2025 Economic Impact Report
3. CoStar/STR, U.S. Hotel Performance Year-End 2025, January 2026
4. JLL, 2025 U.S. Hotel Investment Trends Report, February 2026
5. Lodging Econometrics, U.S. Hotel Construction Pipeline Q4 2025
6. HVS, U.S. Hotel Development Cost Survey 2025
7. CBRE Hotels Research, Trends in the Hotel Industry, 2024
8. LW Hospitality Advisors, 2025 Major U.S. Hotel Sales Survey
9. HotelData.com/Actabl, U.S. Hotel Labor Costs Report, March 2026
10. Grand View Research, Extended Stay Hotel Market Size and Share Report, 2030
11. Marriott International, Hilton, Wyndham, Choice Hotels, SEC Filings 2024-2025
12. IDeaS, Revenue Reactions: U.S. Hotel Occupancy and RevPAR Declined in 2025
13. AHLA, 2026 State of the Industry Report