Uncertainty continues to swirl about the future of the U.S. commercial real estate market at large.
But that hasn’t dampened investor optimism about the nation’s hotel sector. It is poised to see even more capital come its way in 2025 thanks to anticipated higher returns, a supply squeeze driving up values in key metros and a resurgence of business travel to large cities due to in-office mandates.
A CBRE survey found that 94% of hotel investors plan to increase or maintain their holdings in 2025, up from 85% last year.
A January CBRE survey found that 94% of hotel investors plan to maintain or increase their holdings in 2025, up from 85% last year.
“Hospitality continues to be a relative outperformer,” CBRE Head of Hotels for the Americas Bill Grice told Bisnow. “It is inherently a hedge against inflation because you reset your rate every single day.”
The survey shows only 6% of investors plan to cut their allocations to hotels this year compared to 16% in 2024. That sentiment follows a year that saw a 15% increase in global hotel transactions as of Q3 2024, the highest year-over-year increase for any property type, according to MSCI.
A dearth of new hotel construction in some major markets, fueled in part by high interest rates, is boosting the appeal of existing properties, Grice said.
“There’s just not a lot of new rooms entering the market,” he said.
The hotel pipeline is particularly constrained in New York City, which 12.1% of survey participants identified as the most appealing hospitality market in the nation. The Big Apple reported the highest U.S. occupancy levels in both 2023 and 2024, but the city has fewer rooms under construction now than two years ago.
NYC could also be benefiting from an increased investor focus on central business districts. Revenue per available room at urban hotels is expected to grow 2.2% in 2025, according to the CBRE survey.
Grice attributed this to return-to-office mandates and a resurgence of group travel in work contexts. The consensus that important meetings can be held over Zoom has begun to wane five years after the pandemic, he said.
San Francisco was identified as the most appealing market by 11.5% of survey respondents, putting it at No. 2 on the list. CBRE Senior Vice President Henry Bose said direct market inquiries and bid activity in the city have grown significantly.
“This has been fueled by a more moderate and pro business mandate, a settlement with the local hotel workers union and a slate of upcoming major events and conventions for the next two years,” Bose said in a statement.
Courtesy of CBRE
CBRE Head of Hotels for America Bill Grice.
The survey also identified the relatively high number of distressed properties in the city as a point of interest.
The high level of distress makes the Bay Area an outlier, Grice said. Nationwide, the relative stability of the hospitality sector has kept owners and operators out of hot water, he said.
Amid that backdrop, just 10.5% of survey respondents identified distressed properties as a preferred asset type, down from 18.3% last year.
Grice added that lenders have extended more grace to owners and operators of distressed properties in recent years.
“Banks and lenders have been very accommodative to owners and operators who are continuing to operate their properties profitably,” Grice said. “Most of those lenders don’t want to have to take that property back… They made a loan because they had faith in that property and that ownership.”
Vacation properties and luxury hotels are in high demand among investors this year, the survey found. Resorts are expected to see RevPAR grow 1.5% in 2025, which Grice attributed to the ongoing “revenge travel” trend that began when lockdowns ended.
“Resort properties have done incredibly well postpandemic,” he said.
Investors are also disproportionately focused on high-end lodging options. Upscale hotels were identified as the most attractive by 53% of survey respondents. Another 30% picked luxury hotels.
“That part of the economy continues to pull folks that want to spend on great, unique experiences, and that’s not likely to change,” Grice said.
He added that a “massive” ongoing generational wealth transfer is also contributing to the trend.
“We have a cohort of Baby Boomers and Gen X that are starting to inherit the most wealth,” Grice said, adding that many of these heirs will be looking to spend their newfound funds on luxurious vacations.