The Smart Money Is Moving Back Into Hotels—Here’s Why

By Erik Ransdell and Mike Annunziata

Strands Realty Group

April 24, 2025

In a year where headlines swing between economic caution and bullish forecasts, one sector is quietly and steadily regaining momentum: hospitality. Across the U.S., hotel owners and investors are leaning back into the market—not recklessly, but with purpose. They’re finding that in a landscape shaped by new costs, changing guest behavior, and higher borrowing rates, the fundamentals of well-located, well-operated hotels are winning out.

Investor sentiment is not just optimistic—it’s action-oriented. According to CBRE’s latest Hotel Investor Intentions Survey, 94% of hotel investors say they plan to maintain or grow their holdings this year. That’s a notable jump from the 85% reported just last year, and it’s backed by actual deal activity and new capital flowing into the space. The most aggressive capital isn’t chasing novelty—it’s targeting assets in proven markets, especially those where supply is constrained, travel demand is stabilizing, and competitors are still sitting on the sidelines.

Urban markets are regaining their luster, particularly in cities like San Diego, Orange County, New York, and San Francisco. These areas are benefiting from a combination of renewed business travel, rebounding group events, and regulatory crackdowns on short-term rentals that have shifted some demand back to traditional hotels. Meanwhile, smaller markets with a growing base of leisure demand and limited new supply are also drawing increased interest from private equity and regional operators.

Performance metrics point to real stability

Underpinning this optimism are solid performance metrics. Nationwide, hotel occupancy is tracking at 65.6%, ADR has reached $162.72, and RevPAR is holding at $106.81. These numbers don’t just show a rebound—they show a market that’s matured past recovery and is entering a more stable, sustainable phase of growth.

In San Francisco, occupancy has jumped 17.1% year-over-year. Orlando is seeing major gains in both rate and RevPAR thanks to a booming events calendar and resilient family travel demand. These cities are also benefiting from improved airlift and event bookings, which help bolster both weekday and weekend performance.

Not all cities are seeing upward momentum, though. Markets like Philadelphia and Dallas have experienced modest pullbacks in RevPAR, which points to localized supply-demand imbalances or group demand volatility. The lesson here is that while the overall outlook is positive, market selection and property positioning matter more than ever.

Development activity is measured, not frozen

While borrowing costs remain elevated, developers aren’t standing still—they’re just being more strategic. New construction has slowed in most major cities, but that’s giving existing assets a pricing tailwind. And when new projects do break ground, they’re often part of mixed-use developments or adaptive reuse plays that limit risk and boost long-term value.

Repurposing vacant office buildings or underperforming retail spaces into hotels is becoming a go-to strategy in urban cores. These conversions allow developers to move more quickly, take advantage of central locations, and create the kind of experiential lodging products that today’s travelers are looking for.

Select-service and extended-stay properties are also seeing a bump in activity. Their lower operating costs and predictable cash flows make them attractive in a capital-constrained environment. They also fit well with travel demand patterns that prioritize value and flexibility.

Tariffs are reshaping the cost equation

There’s no ignoring it—tariff policy is front and center in nearly every hotel development conversation right now. With materials like steel, aluminum, and imported fixtures seeing significant price hikes, construction and renovation costs have ballooned. Projects that once penciled easily are now being reworked, delayed, or shelved entirely.

This cost pressure is forcing many developers to get creative. Some are scaling down project scope, while others are pivoting to adaptive reuse or domestic suppliers to bring budgets back in line. The ripple effect is slowing new hotel supply, which could support pricing power for existing assets but also adds friction to long-term growth planning.

Operationally, hotels are also feeling the squeeze. Costs for imported FF&E, in-room technology, and even basic back-of-house equipment have surged, eating into margins and complicating CapEx planning. For owners and operators managing large portfolios or dealing with aging assets, this is especially tough to navigate.

There’s also an impact on travel flows. International tourism to the U.S. has taken a modest hit in some regions, partly due to rising geopolitical tensions tied to trade disputes. Some countries have issued travel warnings or tightened visa approvals, and gateway markets like Los Angeles and New York are feeling that friction.

Hotels are adapting by shifting procurement to regional suppliers, bundling purchasing across assets, and putting greater emphasis on domestic traveler segments. Loyalty programs, drive-market campaigns, and promotional pricing are helping offset softness in inbound international demand.

Tech investment is no longer optional

Hotels that adopted new technologies early are now seeing real returns—both in cost savings and guest satisfaction. Automation is making operations leaner. Smart thermostats and lighting are cutting utility bills. Mobile check-in and AI-powered customer messaging are easing front-desk congestion and reducing labor needs.

With staffing still a major issue across the industry, these investments are proving essential. And they’re catching the attention of lenders and equity partners alike. During diligence, many investors now ask about a property’s digital infrastructure, viewing it as a key indicator of operational efficiency and guest experience.

The hotels that will outperform in this environment are those that integrate technology not just as a guest-facing perk, but as a backbone for their entire business model. Whether it’s predictive maintenance software, revenue management systems, or automated inventory tools, the ability to run a tighter ship is translating directly into higher NOI and investor interest.

The capital is coming back—selectively

As we move into the second half of the year, expect more transaction volume. Lenders are tiptoeing back into the market, and investors are starting to get more comfortable with current pricing levels. With many COVID-era loans maturing and deferred CapEx coming due, more assets will hit the market—some distressed, some repositionable, and some simply misaligned with their current operators.

The strongest interest is focused on three areas: extended-stay hotels, well-located urban assets with a value-add angle, and mixed-use projects where hotel operations are part of a broader ecosystem. Investors are also targeting hotels in markets with favorable supply-demand dynamics and strong local economic growth.

Family offices and private equity are especially active right now, often moving faster than institutional players and taking calculated bets in secondary markets. They’re drawn to opportunities where pricing has adjusted, operations are stabilizing, and the path to upside is clear—even if it takes a few years to fully materialize.

What’s next for smart operators and investors

Looking ahead, the key themes are discipline and data. The easy wins are gone. What’s left are operational plays, strategic holds, and smart capital improvement plans that stretch dollars further. The goal isn’t just to survive the next 12 months—it’s to emerge stronger, more efficient, and better positioned to capitalize when the cost of capital eventually eases.

Operators should continue focusing on core metrics: labor efficiency, guest satisfaction, and real-time pricing responsiveness. Those that can adjust quickly, control costs, and maintain service levels will build an edge that compounds over time.

For investors, now is the time to align with operators who have a plan—not just a pitch. Underwriting should assume higher rates and slower growth, but also recognize the upside in stabilized RevPAR and ADR trends. The deals are out there—they just require more precision and patience to find and execute.

Bottom line: this isn’t a bounce—it’s a rebuild

There’s no sugarcoating the challenges still ahead. But there’s also no denying the traction this industry is gaining. Hospitality is one of the few corners of commercial real estate that’s absorbing cost pressures and still finding ways to drive top-line growth.

The smart money isn’t chasing trends. It’s leaning into fundamentals, targeting the right markets, and backing operators with real execution skills. If you’re in a position to act—or ready to reposition what you already have—this is a window to do it with focus and clarity.

Because while the headlines may fluctuate, the fundamentals don’t lie. And right now, they’re pointing to hotels.