Hotels & Motels Industry in the US – Comprehensive 2025 Report

Modern hotel with palm trees!

Executive Summary

The U.S. Hotels & Motels industry has rebounded strongly from the COVID-19 pandemic and is entering a phase of steady growth amid new opportunities and challenges. Industry revenue reached an estimated $239 billion in 2023, nearly back to its 2019 peak, after surging ~16% in the past year alone. Occupancy rates recovered to ~63% in 2023, just shy of pre-pandemic levels (66% in 2019), while average daily rates (ADR) hit record highs ( ~$156 in 2023 vs. $132 in 2019). Major hotel companies have reported record revenues in 2024, signaling that the industry has moved beyond recovery into a new growth phase. However, growth is moderating: five-year forecasts call for modest annual gains in revenue and RevPAR through 2030, with total industry revenue projected to reach ~$395 billion by 2030 (about 7.1% CAGR from 2025). Key drivers include a continued rise in travel demand – both domestic leisure and a gradual return of business and international travel – tempered by macroeconomic headwinds like inflation, rising costs, and high interest rates. The industry remains highly fragmented and competitive, dominated by franchised hotel chains but with a significant independent segment. Going forward, hotels face evolving consumer preferences (e.g. demand for unique experiences, “bleisure” travel) and must navigate operational challenges (labor shortages, cost inflation, alternative lodging competition) even as overall outlook through 2030 remains positive. Both lenders and investors are cautiously optimistic – attracted by the sector’s recovery and long-term growth, yet mindful of its cyclical risks. The following report provides a detailed analysis of the industry’s current state, historical performance, market segments, regional trends, competitive landscape, five-year forecast, and considerations for stakeholders.

Industry Overview: Macro & Micro Dynamics

Macro-Level Trends: The Hotels & Motels sector is closely tied to broad economic and travel trends. Demand for lodging reflects levels of domestic and international tourism, consumer spending, and business activity. After the unprecedented downturn in 2020, the U.S. economy’s rebound and lifted travel restrictions unleashed pent-up travel demand, fueling a rapid recovery in 2021–2023. By 2023, U.S. hotel demand had fully surpassed 2019 volumes in nominal terms. Consumers prioritized experiences and “make-up” trips post-lockdowns, resulting in record leisure travel spending. Key external drivers currently bolstering the industry include rising domestic tourism, increased consumer discretionary spending, and a revival in business travel, alongside the continued expansion of online booking channels. Another macro boost is the expected influx of international visitors as global travel normalizes – analysts note that a return to 2019 inbound travel levels (an additional ~4.7 million overseas visitors) could lift U.S. hotel occupancy by about 1.2 percentage points.

At the same time, economic headwinds are tempering growth. Elevated inflation and interest rates in 2023–2024 have made travelers and hoteliers more cost-conscious. Some consumers are moderating spending on lodging amid higher prices for essentials (gas, food). Fears of a potential recession and geopolitical uncertainties (e.g. conflicts abroad) add caution to the outlook. Nevertheless, the broader macro environment – low unemployment, resilient consumer spending on travel experiences, and upcoming major events (like the 2026 FIFA World Cup and 2028 LA Olympics) – provides a supportive demand backdrop. Overall, the industry’s fate remains closely linked to GDP growth, disposable income trends, and travel sentiment, with current forecasts expecting travel & tourism to outpace general economic growth in the coming decade (projected ~5.8% annual global travel growth vs 2.7% GDP).

Micro-Level Dynamics: Within the industry, several structural and consumer trends are shaping competition and operations. A notable dynamic is the rise of “bleisure” travel and experiential stays – as remote work and flexible schedules become common, more travelers are blending business with leisure trips or seeking out unique, local experiences. Hotels have responded by catering to digital nomads and experience-seeking guests, emphasizing local culture, wellness, and personalized services. There is also a growing emphasis on sustainability and wellness in hospitality offerings, especially in upscale segments, to meet evolving guest values.

Technology adoption has accelerated as well – from mobile check-ins and digital concierge services to investments in AI for revenue management and personalization. Industry leaders view technology as “the single most powerful force driving the future of hospitality,” using cloud-based systems and AI to enhance efficiency and guest experience. Many hotels are experimenting with automation (e.g. robotic services) in response to labor shortages.

Another critical micro trend is the enduring impact of the labor crunch. Hotels nationwide have struggled to re-staff after the pandemic; as of early 2023, ~79% of U.S. hotels reported staffing shortages. Wage rates have climbed as hoteliers compete for talent, pressuring operating margins. Training and retention have become top priorities, with a focus on flexibility and career growth to attract workers.

Meanwhile, alternative lodging platforms (like Airbnb and Vrbo) continue to pose competitive pressure, especially for price-sensitive and extended-stay travelers. The proliferation of short-term rentals and “marketplace” booking platforms means hotels must highlight their service, consistency, and loyalty benefits to maintain share. This is pushing even independent hotels to join online marketplaces or soft-brand collections for wider exposure.

In summary, the industry’s microenvironment is one of innovation and adaptation: operators are adjusting business models (e.g. leaner staffing, ancillary revenue streams) while striving to meet guests’ rising expectations for cleanliness, flexibility, and unique experiences in a post-pandemic world. Hotels that successfully capitalize on these trends – by leveraging technology, reimagining services, and controlling costs – are poised to strengthen their position in the evolving hospitality landscape.

Historical Performance and Financial Metrics

The past decade has been a rollercoaster for U.S. hotels, with a long upcycle in the 2010s abruptly disrupted by COVID-19 in 2020, followed by a robust recovery. 2015–2019: The industry enjoyed steady growth in the late 2010s, fueled by a strong economy and high travel demand. By 2019, U.S. hotels sold roughly 1.3 billion room-nights annually, with an average occupancy of 65.9% – one of the highest on record. Industry-wide revenue hit a peak of around $270–$280 billion in 2019 (including rooms and ancillary services), capping a decade of expansion. Key performance metrics were solid: RevPAR (revenue per available room) reached about $86.50 in 2019, and ADR (average daily rate) stood around $131.5. Profit margins were healthy as demand outpaced new supply in many markets.

2020 Pandemic Collapse: The COVID-19 crisis dealt an unprecedented blow. Travel ground to a halt in spring 2020, driving U.S. hotel occupancy to a record low 24.5% in April 2020. At the worst point, seven in ten hotel rooms sat empty nationwide. Full-year occupancy averaged only ~44% in 2020 – a stunning drop from ~66% the year prior. Room revenue, which had been $170.3 billion in 2019, plummeted by nearly 50% to just $86.0 billion in 2020. The industry’s total revenue fell to ~$160–$170 billion range in 2020, erasing a decade of gains. The financial pain was severe: thousands of hotels closed temporarily or permanently, and 670,000 hotel operations jobs were lost in 2020 (along with 4 million broader hospitality jobs). By May 2020, hotels had already lost over $21 billion in revenue compared to the prior year. Luxury and urban hotels were hit disproportionately (e.g. luxury segment occupancy fell below 15% in spring 2020), while economy hotels fared slightly better (~40% occupancy in economy segment at that time).

Recovery 2021–2023: The lifting of travel restrictions and swift return of leisure travel led to a sharp rebound starting summer 2021. Hotel revenue “skyrocketed” in 2021–2022, as IBISWorld notes, though off a low base. By 2021, annual room revenue bounced back to $142.9 billion (from $86B in 2020), and industry revenue overall grew slightly in 2021 despite ongoing limitations on business travel. The recovery accelerated in 2022: hotel room revenues soared to $189.1 billion in 2022 – nearly back to pre-pandemic levels. Nominally, U.S. RevPAR actually exceeded its 2019 level by 2022, reaching $93.49 for the year (versus $86.56 in 2019). This was driven by a surge in ADR due to inflation and high leisure demand. In fact, hotels were able to charge higher rates than ever – 2022 ADR averaged $149.50, well above 2019’s $131.56. Many resorts and upscale hotels capitalized on wealthy travelers’ willingness to spend; ADR gains helped offset still-recovering occupancy.

By 2023, the industry was largely recovered and even expanding in nominal terms. Occupancy for 2023 is estimated around 62.9–63.8% on average, essentially matching the mid-60s rates of 2018–2019 aside from a remaining small gap. The average daily rate in 2023 climbed to ~$156m, a record high, reflecting both inflation and pricing power during high demand periods. As a result, RevPAR in 2023 hit approximately $98, marking a new all-time high (roughly 13% above 2019’s level). Total industry revenues (including rooms, food & beverage, etc.) were roughly $235–$240 billion in 2023. That represents only a ~0.3% annualized growth from 2018 (due to the 2020 plunge), but the trajectory has been decisively upward since 2021. Importantly, 2023 room demand and nominal revenues surpassed 2019 records, though when adjusted for inflation the recovery in some segments (e.g. urban business travel) was still catching up.

Financial Metrics & Profitability: The industry’s cost structure changed during the pandemic and recovery. Hotels drastically cut expenses in 2020 to survive, and many have tried to maintain some of those efficiencies. However, operating costs have risen sharply in 2022–2023 due to labor shortages, wage inflation, and supply chain issues. For many operators, expenses (labor, utilities, insurance, etc.) grew faster than revenue in 2023, tightening profit margins even as top-line metrics hit records. For example, labor costs are significant – U.S. hotels’ total wages and salaries paid in 2024 are forecast at $125.7 billion, up 2.1% from 2023. Still, with RevPAR at record levels, many properties returned to profitability by 2022. Industry EBITDA margins in 2023 were likely approaching pre-pandemic norms (~25-30% for a typical full-service hotel in good times), though exact figures vary by segment.

One notable outcome of the pandemic was increased revenue volatility – the industry’s revenue swung from double-digit decline to double-digit growth within a few years. This has reinforced the importance of financial resilience. Hotels have grown more cautious with leverage and more focused on ancillary revenue streams (fees, premium services) to bolster income. By late 2023, national hotel RevPAR growth was slowing (to ~+2–4% YoY), indicating a return to a more typical growth pattern after the post-lockdown surge. Going forward, maintaining rate integrity and controlling costs will be key for sustaining profits, especially if occupancies plateau near the 63–65% range.

In summary, the historical performance shows an industry that bottomed out in 2020 and achieved a strong comeback by 2023. Occupancy and demand have normalized, ADR reached new highs, and overall revenues are hitting records, albeit partly due to inflation. While growth is now stabilizing, the Hotels & Motels sector demonstrated remarkable resilience – recovering a decade’s worth of lost ground in roughly two years. The financial outlook is much healthier than the dark days of 2020, yet hoteliers remain vigilant about cost pressures and the potential for future shocks.

Industry Segmentation: Business Models and Service Tiers

Franchised vs. Independent Hotels

The U.S. lodging industry comprises a mix of large chain-affiliated hotels and smaller independent properties, with franchising being the dominant business model for most branded hotels. In recent years, the trend toward franchising has accelerated – today roughly 80% of hotels in the U.S. are franchised operations (affiliated with a major brand but owned by franchisees), while only about 20% remain truly independent. This represents a dramatic shift from decades past; as late as the 1980s, big hotel companies owned or managed many of their locations, but the asset-light franchise model now prevails. By 2024, chain-affiliated hotels account for ~70% of the U.S. market by revenue, versus ~30% for independents. Moreover, the chain penetration is still growing – chain hotels comprised 73% of total U.S. room supply in 2023, up from 68% in 2010, and an overwhelming 80.7% of all new hotel rooms under construction are in chain-affiliated projects.

The franchised “brand” hotels benefit from the marketing, distribution, and loyalty programs of large hotel corporations (Marriott, Hilton, etc.), which has driven their expansion. Major chains employ an “asset-light” strategy: companies like Marriott and Hilton primarily provide branding and management support to franchisees (or third-party operators) rather than owning real estate. This has enabled rapid growth in their system sizes and a consistency of standards that attracts many travelers. During the pandemic, affiliation proved advantageous – branded hotels had access to corporate resources (e.g. enhanced cleaning programs, reservation systems) that helped inspire guest confidence. Independent hotels, in contrast, had to navigate these challenges alone, which led some to seek the shelter of soft brands or collections. Indeed, a notable trend is the rise of “soft brand” affiliations: many independents are joining collections like Marriott’s Autograph Collection or Hilton’s Curio, which allow unique properties to remain independent in character while tapping into a global reservation network.

Despite the overall dominance of franchised chains, independent hotels still play a crucial role, especially in the luxury, boutique, and resort segments where individuality is a selling point. Independents often thrive by offering highly localized, authentic experiences in ways a standardized brand cannot. They comprise roughly one-third of all U.S. hotels by number (though a smaller share by revenue). The independent hotel segment is growing at an estimated 6.2% CAGR from 2025 to 2030, as travelers seek unique accommodations and as platforms (e.g. online travel agencies and Airbnb’s hotel listings) make it easier for independents to reach customers. However, independent operators face higher marketing costs and sometimes lower occupancy if they lack a loyalty base.

Within the franchised realm, management structures vary. A significant portion of franchised hotels are not only owned by franchisees but also managed by third-party management companies (neither the brand nor the owner directly runs day-to-day operations). Nearly half of branded hotels are run by such third-party operators, which specialize in maximizing performance under franchise standards. This underscores the complex ownership/management landscape: for example, a Marriott-branded hotel might be owned by a real estate investor, franchised from Marriott, and operated by a management firm – each taking a slice of the revenues.

One segmentation within franchising is by chain scale. Notably, the major chains tend to franchise their lower-tier brands far more than their high-end brands. An industry analysis found that Marriott, Hilton, and Accor franchise only about 8.6% of their luxury properties, but franchise 62.6% of their midscale hotels and 47% of their economy hotels. This indicates that big brands often prefer to directly manage flagship luxury assets (to maintain ultra-high service levels) while relying on franchise partners for the more standardized midscale/economy segments.

In sum, the U.S. hotel market is bifurcated between franchise-affiliated properties and independents. Franchises dominate mainstream lodging with their scale and resources – offering owners the benefits of brand recognition and global distribution – whereas independents compete through differentiation and niche appeal. Both models coexist, but the long-term trajectory has favored franchising, as evidenced by the growing chain footprint and continuous consolidation under big brand families.

Service Tier: Full-Service vs. Limited-Service vs. Budget

Another key lens to segment the hotel industry is by service level and price tier – ranging broadly from luxury full-service hotels down to no-frills budget motels. These tiers not only target different customer segments but also exhibit different performance dynamics:

• Luxury and Upper Upscale (Full-Service Hotels): This tier includes 4-star and 5-star hotels and resorts that offer a wide array of amenities (restaurants, bars, concierge, banquet/meeting spaces, spas, etc.). Examples are Marriott’s JW Marriott and Ritz-Carlton, Hilton’s Waldorf Astoria, Four Seasons, and similar. These full-service hotels command the highest room rates and cater to upscale leisure travelers, business groups, and events. In 2024, the luxury and upscale segment accounted for about 61% of U.S. hotel market revenue – by far the largest share. High-end hotels benefited from a strong luxury travel rebound: affluent consumers drove leisure revenue beyond pre-pandemic levels (hotels’ luxury leisure travel revenue in 2022 was 14% above 2019). However, luxury hotels also saw the steepest declines in 2020 (e.g. ~15% occupancy at the trough) and rely more on international and corporate demand, which only fully returned by 2023. Full-service hotels tend to have higher operating costs (labor- and service-intensive) and were hit by staffing shortages acutely as travel resumed. Still, their pricing power has been evident – many luxury properties significantly raised rates in 2021–2023 to offset lower occupancy. The segment’s focus is now on experiential, high-value offerings, and indeed many luxury brands are incorporating sustainability and personalized wellness into their services to justify premium rates. Growth-wise, development of new luxury hotels is limited (only ~5.6% of the pipeline as a percent of existing luxury supply), but upscale (4-star) hotels are a sizable portion of new projects.

• Midscale and Upper Midscale (Limited-Service Hotels): These are the select-service hotels that provide limited on-site services (often no full-service restaurant or concierge, but may have free breakfast, gym, etc.). Brands here include Hampton Inn, Holiday Inn Express, Fairfield Inn, Comfort Inn, etc. They target the broad middle market – families, road travelers, business travelers seeking value. This tier typically offers lower rates than upscale, with functional rooms and fewer frills. During economic downturns, upper-midscale hotels tend to be resilient as travelers “trade down” to save money. For instance, in a potential 2024 slowdown, analysts expect RevPAR declines to be milder in upper-midscale hotels than in luxury, continuing a historical pattern. In the U.S., midscale chains are extremely prevalent along highways and in secondary markets. Developers also favor this segment: upscale and upper-midscale projects together make up about half of all new rooms under construction in the U.S. The popularity is due to their relatively high ROI and broad demand base. As of 2024, midscale/upper-midscale hotels still generate a significant share of industry revenue (the remaining ~39% not captured by upscale/luxury) and are projected to grow fast in coming years (midscale demand at ~7.6% CAGR 2025–2030). Many hospitality analysts note that consumers are increasingly value-conscious, so well-run limited-service hotels with modern designs can thrive. These properties achieved solid occupancy even during COVID (some served as lodging for essential workers, etc.), and by 2022–2023, midscale occupancies in many regions were on par with or above luxury segment rates. Overall, this tier’s strength is efficiency and value – a trend likely to persist as travelers balance cost and comfort.

• Economy/Budget Hotels and Motels: This segment comprises no-frills accommodations such as roadside motels, budget inns, and economy brands (e.g. Motel 6, Super 8, Econo Lodge). They offer the lowest price points, minimal amenities, and often cater to motorists, budget travelers, and longer-term guests seeking cheap stays. Economy hotels proved relatively more resilient in the pandemic – while absolute occupancy was low, economy properties maintained higher occupancy (40%+ in spring 2020, vs <20% for luxury) because they captured essential travel and local quarantine business. Post-pandemic, economy hotels have seen steady demand from cost-conscious travelers and those shifting from upscale due to tighter budgets. That said, the economy segment faces competition not only internally but from alternative accommodations in the budget range. In terms of development, economy hotels have the smallest pipeline – only ~1.2% of existing economy room supply was under construction as of late 2024. This indicates limited new supply, partly because returns at the very low end can be slim. Many existing motels are older and have converted to other uses or been upgraded to midscale. The major economy franchisors (Wyndham, Choice) continue to refresh their brands to stay appealing. For example, new prototypes with modern design and tech (Wi-Fi, smart TVs) are being rolled out in economy chains to meet baseline guest expectations. Despite lower revenue per room, economy hotels can be profitable through low operating costs and often have higher cap rates (more on that in investor section). They remain an important segment especially in small towns and interstate corridors.

It’s important to note that service tier often correlates with business model: the vast majority of economy and midscale hotels are franchised, whereas the top luxury hotels are more often company-managed or independent. As mentioned, big brands only franchise a tiny fraction of their ultra-luxury properties, preferring to keep tight control, while relying heavily on franchisees for midscale growth. Additionally, service tier influenced pandemic performance: limited-service hotels (midscale/economy) could scale down operations more easily and saw quicker occupancy recovery, while full-service hotels had higher fixed costs and slower return of certain revenue streams (restaurants, group events). By 2023, full-service luxury hotels rebounded strongly on rate (ADR), and group/event business in those properties was approaching normal, but their staffing and service levels are still ramping up to meet renewed demand.

In summary, full-service hotels (upscale/luxury) compete on comprehensive amenities and premium experience – they lead revenue share and rate but are more volatile. Limited-service and budget hotels compete on value and convenience – they are the workhorses of the industry with stable demand and broad geographic dispersion, expected to see solid growth as travelers seek affordable options. All tiers together form a spectrum that the major hotel companies cover via brand portfolios, ensuring they capture customers across price points.

Regional and Geographic Market Analysis

The United States hotel market exhibits significant regional variation, reflecting differing economic bases, travel patterns, and supply dynamics across the country. Nationally, the recovery has been strong, but not uniform – some regions and cities have outperformed others. Here we examine both the national picture and key geographic trends:

National Averages: For 2023, U.S. hotels’ average occupancy ~63% and ADR ~$155 provide a benchmark. By year-end 2024, occupancy is forecast around 63.0%–63.5% and ADR ~$159. However, these averages mask regional differences. For instance, urban gateway markets (like New York, San Francisco, Boston) had lagged in 2021 but surged in 2023 as international and corporate travel returned. Conversely, resort and leisure destinations that led the recovery (e.g. Florida beach markets, mountain resorts) saw growth temper as Americans traveled more overseas in 2023.

Coastal and Gateway Cities: Major gateway cities—New York, Los Angeles, Miami, San Francisco, Washington D.C.—are critical to the hotel industry. These markets typically have higher ADRs and a large share of international visitors and business travelers. They experienced the steepest declines in 2020 (due to reliance on air travel and group events) and a delayed rebound compared to Sunbelt leisure markets. By 2023, the tide turned: New York City’s hotel sector, for example, saw robust recovery with the return of international tourism (helped by a strong dollar attracting inbound travel) and the lifting of pandemic restrictions on offices and events. New York now boasts over 115,000 hotel rooms – the second most of any city globally after Las Vegas – and occupancy has climbed back to solid levels. In fact, NYC led all U.S. markets in Q3 2023 sales volume (over $1.2 billion in hotel transactions) as investor confidence returned. Los Angeles similarly is recovering; it expects boosts from a rebound in Asian visitors and upcoming mega-events (the city will host World Cup games in 2026 and the Olympics in 2028). Miami and Orlando enjoyed strong leisure-driven performance throughout 2021–2023 (Florida was notably quick to recover, with less stringent COVID measures attracting travelers). Miami’s luxury resorts and Orlando’s theme-park hotels saw ADRs exceed 2019 levels early on, and these markets remain robust, though Miami now faces increased competition from the Caribbean as travel diversifies. San Francisco and some other West Coast cities lagged due to slow office re-openings and less domestic leisure demand, but even there, late 2023 brought improvement with big conferences returning.

Sunbelt and Secondary Markets: Many Sunbelt cities (e.g. Phoenix, Dallas, Nashville, Charleston) weathered the pandemic relatively well and have continued to grow. Phoenix saw a surge of domestic leisure and sports tourism, leading its occupancy to bounce back quickly; its pipeline is sizable (about 5.3% of existing rooms under construction) with a mix of chain and independent projects. Nashville has been a boomtown for hotels – a popular leisure and convention destination, it has one of the highest pipelines (in-construction rooms equal ~4.5% of existing supply) and almost entirely chain-driven development (97% chain vs. 3% independent in pipeline). This reflects confidence in high-growth metros, though it also raises concerns of oversupply in certain cities. Las Vegas, a unique market with over 150,000 rooms (the most in the world for one metro), saw a strong rebound in weekend leisure and gaming travel, but midweek convention business only fully returned by 2023. Vegas’s occupancy and ADR have been climbing, and new resorts (such as Resorts World in 2021, and others planned) point to renewed investment. Hawaii (Honolulu/Waikiki) also recovered exceptionally in 2022–23 once restrictions eased, given its appeal to both U.S. and international tourists; ADRs in Hawaii are among the highest nationally.

Regional Performance: On a broader regional level, the U.S. South and West regions generally led the recovery, buoyed by leisure hotspots in Florida, Texas, mountain states, and coastal California. For example, by late 2022, many beach destinations on the Gulf and Atlantic coasts were reporting occupancies and revenues well above 2019. In contrast, the Northeast and Midwest urban centers were slower but are now catching up as business travel and large events come back. Data from early 2024 indicated that urban hotels will likely outperform with higher RevPAR growth as their lagging segments (international, corporate, group) rebound, whereas resort hotels will see the slowest growth since they had less room to improve after an early boom. This rotation means markets like Chicago, Washington D.C., and Boston – which had been behind – are expected to see above-average gains in occupancy in 2024. Boston, for instance, benefits from university- and healthcare-related travel and an uptick in conventions. Washington D.C. is poised for more group and overseas visitors as wel.

Geographic Demand Drivers: Different regions have unique demand drivers. Tourism-heavy areas (Florida, Hawaii, Nevada) rely on leisure travel trends and international tourists; they are sensitive to global economic and health situations but enjoy surges when travel sentiment is strong. Business hubs (New York, Chicago, San Francisco) depend on corporate travel budgets and convention calendars; their outlook has improved as corporate travel recovers, albeit business travel may not fully return to pre-2020 volumes due to virtual meeting alternatives. Industrial and highway markets (Midwest and interstate junction cities) see steady demand from transportation, manufacturing, and regional business – they held up relatively well even in downturns and continue to grow modestly, often hosting many midscale and economy properties. College towns and medical centers provide stable year-round demand in certain smaller markets.

Regional Supply Trends: Supply growth varies by region too. According to STR data, as of 2024 the highest concentration of new construction is in the Sunbelt and West. Markets like Miami, Nashville, Austin, and Charlotte have a high ratio of rooms being built relative to their current supply, which could introduce competitive pressure in coming years. In contrast, some already saturated markets (San Francisco, Oahu) have very limited new supply due to zoning, costs, or lack of sites, which helps existing hotels maintain pricing power. Regulatory factors also play a role regionally – for example, New York City’s restrictions on short-term rentals (Airbnb) in 2023 are expected to channel more demand back to hotels. Similarly, certain cities are considering limits on hotel development or mandating higher wages, which could affect future regional dynamics (e.g., wage mandates in Los Angeles and other California cities might raise cost structures for hotels there).

In essence, regional trends in the U.S. hotel industry have recently been defined by the recovery curve: leisure-heavy regions surged first, urban markets followed, and now a more typical demand pattern is resuming. Going forward, many analysts foresee continued strength in Sunbelt and leisure destinations (due to population growth and popularity for vacations), while gateway cities regain their stride thanks to international travel’s return. Events like the World Cup (with matches across North America) and the LA Olympics will create regional spikes. The industry is also watching geographic shifts in travel – for example, more Americans exploring secondary cities and national parks (a trend born in the pandemic) which has benefited places like Montana, Utah, etc. The U.S. is a large, diverse market, so while national metrics are useful, successful investors and operators will pay close attention to local conditions: supply pipelines, demand generators, and economic health in their specific markets.

Five-Year Forecast (2025–2030 Outlook)

Looking ahead, the Hotels & Motels industry in the U.S. is expected to see steady, moderate growth over the next five years (through 2030), transitioning from the post-pandemic rebound into a more normalized expansion phase. Forecasts by industry analysts and economic firms project that by 2030, industry revenues will reach new heights, albeit with growth rates closer to historical averages than the extreme volatility of recent years.

Revenue and Demand Forecast: The total U.S. hotel market size (all revenues) is projected to grow from an estimated $280.6 billion in 2025 to $395.7 billion by 2030. This equates to a compound annual growth rate of roughly 7.1% from 2025 to 2030. Several factors underpin this optimistic outlook: continued economic expansion (barring a short recession), increasing consumer preferences for experiences/travel, and the full return of segments like international tourism and group events. While a 7% CAGR is above long-term averages, it reflects some remaining catch-up in segments that lagged and expected price inflation. In inflation-adjusted terms, growth will be more modest. Key drivers mentioned include rising domestic and international tourism, higher consumer spending on travel, and innovative hospitality services creating new revenue streams.

Occupancy and Room Demand: Occupancy rates are forecast to remain high but just below previous peaks for the next couple of years, then potentially inch upward later in the decade as demand grows faster than new supply. According to Oxford Economics/STR, U.S. hotel occupancy will be about 63.3% in 2025 (nearly matching 2019’s 65.8%). This represents only a slight increase from ~63.0% in 2024 and ~62.8% in 2023 – essentially a plateau in the low 60s. Forecasters note that occupancy will hold steady and remain just short of record 2019 levels in the mid-term. By the late 2020s, if travel demand continues to grow and supply additions stay moderate, occupancy could push back toward the upper-60s percentage range, perhaps reaching new highs around 66–67% nationally by 2028–2030. This assumes robust inbound travel and no major shocks. Notably, international tourism to the U.S. is expected to fully rebound by around 2025–2026, providing a boost to room-night demand. The U.S. Travel Association and others foresee inbound visitor numbers climbing, aided by growing middle-class travelers from markets like Asia. Additionally, large events (World Cup 2026, Olympics 2028) will create occupancy surges in host cities and positive ripple effects nationally.

ADR and RevPAR Outlook: Average daily rate growth is expected to moderate compared to the sharp climbs of 2021–2023. PwC projects U.S. ADR will increase roughly 1%–2% per year in the near term. After the big catch-up gains (nearly 10%+ annual ADR growth in 2021–22), rate growth is aligning with inflation or slightly above. By 2025, ADR is forecast to hit $162 on average (up ~2% from 2024). Thereafter, one can expect ADR to continue setting nominal records each year, potentially reaching the $170s by 2030, assuming ~2–3% annual increases compounded. Key drivers for ADR increases will be higher operating costs (necessitating rate hikes) and improved product offerings (renovations and new amenities allowing hotels to charge more). Revenue per available room (RevPAR), combining occupancy and rate effects, is projected to rise at a mid-single-digit pace in the next few years. For example, RevPAR in 2025 is expected around $102.78, up 2.6% from 2024. Through 2030, with occupancy potentially ticking up and ADR rising modestly, RevPAR could grow ~3–5% annually on average (in nominal terms). By 2030, national RevPAR might be on the order of $120 (versus about $100 in 2024), although any economic downturn could interrupt growth for a year or two.

Continued Growth vs. Risks: Overall, industry revenue and performance metrics are on a positive trajectory through 2030. This assumes no severe disruptions; however, it’s worth noting risk factors that could impact the forecast. These include the possibility of an economic recession (which would reduce travel demand especially in corporate and upscale segments), geopolitical events or pandemics, and the growing presence of alternative accommodations drawing some demand share. On the supply side, if financing becomes more available later in the decade, a construction boom could increase room supply and pressure occupancy. Presently, supply growth remains below historical average (net new supply ~1% or less annually), which helps sustain the favorable occupancy outlook. But any acceleration to 2-3% new supply per year in the late 2020s could cap occupancy gains.

Industry experts also highlight that beyond pure growth, the period through 2030 will be about evolution and innovation. Hotels are expected to invest in technology (from guest-facing apps to back-end AI systems) and alternative revenue streams (such as subscriptions, day-use offices, locals-focused amenities) to enhance profitability. Sustainability initiatives (energy efficiency, carbon reduction) may become more standard and could involve capital expenditure but also attract a new generation of eco-conscious guests. These qualitative improvements aren’t directly captured in RevPAR but will shape the industry’s competitive landscape by 2030.

In terms of specific numbers provided by sources: Grand View Research predicts the U.S. hotel market will reach ~$396B in 2030, which aligns with a healthy growth narrative. IBISWorld’s five-year outlook (2025–2030) likely calls for growth in line with economic trends, potentially with industry revenue growth in the low-to-mid single digits annually and industry employment rising accordingly. Occupancy is expected to remain in the low 60s% range for the next couple of years, then gradually improve. One external benchmark: the global travel & tourism sector is anticipated to grow ~5.8% annually through 2032, and as part of that, U.S. lodging will capture its share of expansion, especially if U.S. inbound travel grows and domestic travel stays robust.

Segment Variations: The forecasted growth will not be evenly distributed. Luxury and upper-upscale hotels could see outsize ADR growth (as they continue to regain pricing power and add high-end offerings), whereas economy hotels might grow more via occupancy gains (filling more rooms as budget travel stays popular). The midscale segment is actually projected to grow demand fastest (e.g. that 7.6% CAGR for midscale demand through 2030), signaling that the middle market will expand as travelers seek affordable quality. Also, extended-stay hotels (not explicitly covered earlier) are likely to do well – these straddle hotel and apartment functionality and have become a favored product for both guests and developers; expect more extended-stay inventory by 2030, serving both leisure and corporate needs for longer stays.

In summary, the five-year outlook for the U.S. hotel industry through 2030 is cautiously optimistic. Growth will continue at a moderate pace, pushing industry metrics beyond pre-pandemic records. By 2030, we anticipate record-high revenues, ADR, and RevPAR, with occupancy at or above prior peaks. The industry is entering a new phase focused on sustainable growth and innovation rather than mere recovery. Stakeholders should prepare for a landscape where incremental gains require differentiation, as the easy demand bounce-back has already occurred. Nonetheless, travel tailwinds – from demographic trends (e.g. retiring boomers traveling more) to global tourism growth – support a positive outlook barring unforeseen disruptions.

Competitive Landscape and Key Players

The U.S. Hotels & Motels industry is highly competitive and fragmented, with thousands of operators ranging from global corporations to independent mom-and-pop motels. Market share concentration is low – even the largest hotel company accounts for well under 20% of industry revenue. According to IBISWorld, the industry’s concentration is such that no single player has an overwhelming share, and competition is intense across all segments. The top hotel companies primarily compete through brand portfolio breadth, loyalty programs, and scale efficiencies, while smaller players compete on niche offerings and personalized service.

Major Players: The largest hotel groups in the U.S. (and globally) are familiar names:

• Marriott International, Inc.: The largest hotel company by revenue and number of rooms, especially after acquiring Starwood in 2016. Marriott oversees a vast portfolio of 30+ brands across all tiers – from luxury (Ritz-Carlton, St. Regis) to midscale (Courtyard, Fairfield) to extended stay (Residence Inn) – totaling roughly 1.5 million rooms worldwide (over 700,000 in the U.S.). Marriott enjoys the industry’s largest market capitalization (~$58.7 billion as of early 2025) and recorded the highest sales among hotel companies (about $13.8 billion in 2021 revenue). Its market share, while the largest, is still only on the order of high single-digits in the U.S. lodging market. Marriott’s strengths are its strong loyalty program (Bonvoy), global reach, and mix of brands catering to every segment. It leads the full-service segment with brands like Marriott, Sheraton, Westin, and also has a growing collection of luxury and boutique “Autograph” and “Edition” hotels. Marriott franchises the majority of its properties (particularly in lower tiers) but manages many upscale/luxury ones directly.

• Hilton Worldwide Holdings: Another leading U.S.-based chain, Hilton has a portfolio of 18+ brands (Waldorf Astoria, Hilton Hotels, DoubleTree, Embassy Suites, Hampton, etc.) and is similarly diversified. Hilton is known for pioneering the asset-light model early; nearly all its hotels are franchised or managed rather than owned. Hilton’s system size is massive (over a million rooms globally) and it is especially dominant in the upper-upscale and upscale segments (e.g. Hilton, DoubleTree, Garden Inn). By some measures, Hilton’s share of U.S. hotel rooms rivals Marriott’s. Hilton’s loyalty program (Honors) and corporate contracts give it a competitive edge in attracting business travelers.

• InterContinental Hotels Group (IHG): Based in the UK but with a huge U.S. presence (brands like Holiday Inn, Holiday Inn Express, Crowne Plaza, InterContinental, Kimpton, Staybridge Suites). IHG’s Holiday Inn brand family is one of the most recognized in mid-market lodging. IHG also acquired Kimpton (boutique brand) and has been expanding its luxury footprint with InterContinental and newer brands like Six Senses. While IHG wasn’t explicitly named in one source’s top list (perhaps due to classification), it is undoubtedly a key player in U.S. franchising, particularly in the midscale and upper-midscale arena. IHG’s system size is slightly smaller than Hilton’s but significant.

• Wyndham Hotels & Resorts: Wyndham is notable for having the most hotels (properties) globally – over 9,000 – largely in the economy and midscale segments. Brands in its stable include Super 8, Days Inn, Ramada, Travelodge, La Quinta, and Wyndham. Wyndham’s focus on franchising economy hotels makes it a leader in the budget segment. While its total room count is high, its market share by revenue is lower because ADRs are lower in its segments. Still, Wyndham commands a huge chunk of roadside and small-town lodging in the U.S. and is expanding internationally. It benefits from a large base of franchisees and a loyalty program (Wyndham Rewards) known for simplicity.

• Choice Hotels International: Another giant of the franchised economy/midscale space, Choice has brands like Comfort Inn, Quality Inn, Econo Lodge, Sleep Inn, Cambria (upscale), and most recently, it agreed to acquire Radisson Hotels Americas (in 2022) – folding in brands like Country Inn & Suites. Choice’s strength lies in the midscale segment (Comfort and Quality are ubiquitous across the U.S.) and economy (Econo Lodge). Like Wyndham, its hotels are mostly franchised and skew toward smaller properties. Choice has around 7,500 hotels open globally, with the vast majority in the Americas. Its market share is significant in the segments it competes in, though not in luxury or full-service categories.

• Hyatt Hotels Corporation: Hyatt is smaller in footprint (about 1,250 properties) but competes strongly in the upscale and luxury sectors. Brands include Park Hyatt, Grand Hyatt, Hyatt Regency, Andaz, Hyatt Centric, as well as the recently acquired Apple Leisure Group (AMResorts brands) expanding its resort all-inclusive portfolio. Hyatt historically owned more of its assets but has moved toward franchising and management contracts too. It is a key player particularly for corporate and convention hotels (Regency) and lifestyle boutique (Thompson, Joie de Vivre, etc., acquired via Two Roads Hospitality). Hyatt’s World of Hyatt loyalty program is highly regarded, and the company’s smaller size allows a bit more focus on high-end service.

Beyond these, other noteworthy competitors in the U.S. include Best Western (which operates as a membership association, with thousands of midscale hotels), G6 Hospitality (Motel 6 and Studio 6 brands in economy segment), Extended Stay America (largest owner-operator in the extended stay niche, focusing on economy extended stay), and Omni Hotels or Drury Hotels which are medium-sized chains in specific segments. Accor (a French company) has a limited U.S. presence mostly via Fairmont and Sofitel, and Radisson Hotel Group had some presence which is now largely under Choice as noted. Boutique and luxury independents are another slice – e.g. Four Seasons (Canadian-based, manages luxury hotels, some of which are U.S. icons), and Rosewood Hotels, Loews Hotels, Noble House, etc., which manage collections of high-end properties.

Market Share Data: While exact market share percentages are hard to pin down due to different measures (rooms vs revenue vs properties), it is clear the top 5–6 companies (Marriott, Hilton, IHG, Wyndham, Choice, Hyatt) collectively represent a large portion of branded rooms. For example, by rooms, Marriott and Hilton each have about 6%–7% of U.S. room supply; add IHG, Wyndham, Choice, and collectively the top five could be around ~40% of rooms. However, because many hotels are independent or part of smaller chains, the market remains fragmented. IBISWorld characterizes the U.S. industry as “low concentration” with Marriott as the single largest player but not dominant. The competitive environment encourages continual brand innovation – major companies have been launching new brands to fill every niche (Hilton’s Tempo and Spark brands, Marriott’s Edition and Moxy, etc.) – which in turn pressures independents and smaller firms.

Segments and Key Players: By segment, leadership varies:

• In the luxury segment, the top players include Marriott (with Ritz-Carlton, St. Regis, Luxury Collection), Hilton (Waldorf Astoria, Conrad), Four Seasons (independent management company), Hyatt (Park Hyatt), and some luxury-only operators like Peninsula or Mandarin Oriental in select cities. However, many luxury properties are independent or part of smaller luxury collections (Leading Hotels of the World, etc.). Marriott’s acquisition of Starwood made it a powerhouse in luxury with over 200 luxury hotels in its portfolio. Hilton and Hyatt are also expanding luxury offerings, but Marriott remains a leader here.

• In upper-upscale/upscale (full-service), Marriott, Hilton, and IHG dominate with their flagship brands (Marriott, Hilton, Sheraton, Westin, Hyatt Regency, Crowne Plaza, etc.). These hotels serve business travel and conventions; the key players own the major brands affiliated with large convention centers and downtown hotels in most cities.

• In midscale and upper-midscale (limited service), Choice and Wyndham have huge footprints (Comfort, Quality, La Quinta, etc.), but Hilton and Marriott also play here through Hampton Inn (Hilton) and Fairfield or Courtyard (Marriott, the latter is upscale-select-service). IHG’s Holiday Inn Express is a major midscale force. So this segment sees competition between the big global companies and the mid-market specialists like Choice.

• In economy, Wyndham and Choice are the giants (with brands like Super 8, Days Inn, Econo Lodge), along with G6 (Motel 6) and Red Roof. Many economy properties are independently owned franchises of those brands. Their competition is often local independents (unbranded motels) as well.

• In extended stay, a growing segment, key brands are Marriott’s Residence Inn and TownePlace Suites, Hilton’s Homewood Suites and Home2 Suites, IHG’s Staybridge and Candlewood, Hyatt’s Hyatt House, Choice’s Suburban and MainStay, and Extended Stay America (which is a standalone brand/company). This segment has seen new entrants like Hyatt’s acquisition of Apple Leisure’s AMResorts (though those are all-inclusive resorts, different category) and new brands such as Marriott’s Element (upper-midscale extended stay).

Competitive Strategies: Large chains compete on loyalty programs (Marriott Bonvoy, Hilton Honors, etc. have tens of millions of members) and try to lock in corporate accounts and group business with nationwide offerings. They also emphasize development deals – for example, Marriott and Hilton have huge development pipelines by attracting franchisees with new brand concepts. Smaller chains or independents compete by carving out a niche – whether it’s ultra-luxury bespoke service, trendy boutique vibes, or budget simplicity. Basis of competition also includes location (some companies have the best locations in certain cities), service quality, cleanliness, and increasingly technology/booking convenience.

Market Share Shifts: The pandemic caused some shake-up – e.g., smaller independent hotels struggled and some closed or got acquired, whereas the big chains quickly ramped back up. Franchising grew as more owners sought the safety of a brand. We also see consolidation continuing: Choice’s acquisition of Radisson Americas in 2022 brought more hotels under its umbrella; Hyatt acquired Two Roads Hospitality in 2018 and Apple Leisure Group in 2021 to expand brand offerings. These moves concentrate more of the market with the top players. Nevertheless, the top 10 companies still likely account for only around half of total U.S. rooms, indicating that competition remains widespread.

In summary, Marriott International holds the largest market share in the U.S. industry but the sector remains fragmented and competitive. Each major player targets multiple segments, and their market power comes from brand networks rather than monopolistic share. “Key players in each segment” can be summarized as:

• Full-Service Upscale/Luxury: Marriott, Hilton, Hyatt, IHG (with Sheraton/InterContinental), plus luxury specialists (Four Seasons, etc.).

• Midscale/Upper-Midscale: Holiday Inn (IHG), Hampton/Homewood (Hilton), Courtyard/Fairfield (Marriott), Comfort/Quality (Choice), La Quinta (Wyndham), Best Western.

• Economy/Budget: Super 8/Days Inn (Wyndham), Econo Lodge (Choice), Motel 6 (G6), Red Roof Inn, Americas Best Value (RLH, now Sonesta).

• Extended Stay: Residence Inn, Homewood Suites, Extended Stay America, etc.

Each segment sees a mix of brands often owned by those top few conglomerates. Going forward, we may see further consolidation and new entrants (for example, tech-enabled hotel startups or an Airbnb-type model entering hotel operation). But as of 2025, the competitive landscape is set by these major corporations and a long tail of independents. The ability to attract guests and developers through brand promise and distribution will determine winners in each segment. Notably, guest preference surveys often rank Marriott and Hilton brands at the top for customer satisfaction and familiarity, which helps sustain their leadership.

Lender and Investor Insights: Risks, Financing, and Returns

From an investment and lending perspective, the hotel industry presents a unique blend of opportunities and risks. Hotels are an operating-intensive real estate asset, meaning both lenders and equity investors must be attuned to travel market volatility and management capabilities. This section provides insights tailored to lenders (e.g. banks, CMBS investors) and equity investors (from REITs to private owners), focusing on risk exposure, financing trends, ROI expectations, and valuation metrics in the current environment.

Risk Exposure and Cyclicality

Hotels are often considered the riskiest major commercial real estate class due to their daily lease structure (room rates can change nightly) and heavy dependence on economic cycles and external events. The pandemic was an extreme case illustrating this risk: hotel revenues dropped over 50% in one year and took multiple years to recover, far outpacing declines in sectors like apartments or industrial real estate. Lenders and investors therefore price in a risk premium for hotels. Key risk factors include:

• Economic Cyclicality: In downturns or recessions, hotels see an immediate impact as businesses cut travel and consumers defer vacations. RevPAR can drop sharply (as seen in 2020, but also in prior recessions like 2009 when U.S. RevPAR fell ~17%). The industry’s revenue volatility is high. This cyclicality means lenders often require lower leverage and higher debt coverage ratios for hotel loans compared to, say, apartments. Equity investors likewise demand higher returns as compensation for volatility.

• High Operating Leverage: Hotels have high fixed costs (staff, utilities, maintenance of property whether rooms are occupied or not). Thus, a small drop in occupancy can significantly reduce profit margins. For example, going from 70% to 60% occupancy might cut profit by a much larger percentage. This amplifies downside risk. Conversely, in boom times, the high operating leverage means profit can surge – an attractive but double-edged sword for investors.

• Event Risk and Seasonality: Hotels are vulnerable to one-off events (pandemics, terrorist attacks, natural disasters, etc.) that can abruptly curtail travel. Even short-term events like hurricanes or city-specific incidents can temporarily hurt local hotel performance. Seasonality is also a factor – many hotels rely on a strong high season to offset slow periods, which is a risk if peak season is disrupted.

• Alternate Lodging Competition: The rise of Airbnb and similar platforms introduces a new kind of risk – the competitive set is broader, especially during peak periods when many homeowners can list units, capping how high hotel occupancy or rates can go. Lenders and investors must consider market-specific Airbnb penetration when underwriting cash flows, as it can dampen hotel pricing power in certain segments (particularly leisure and extended stay).

• Liquidity and Repurposing: Hotels are a specialized asset; in a severe downturn, they can be harder to repurpose or sell compared to other property types. This means lenders might face more difficulty working out distressed hotel loans (few alternative uses other than maybe conversion to apartments, which can be costly). This illiquidity in down cycles raises the risk profile for both lenders and equity holders.

Given these risks, lenders typically cap loan-to-value (LTV) ratios for hotels at lower levels than other real estate. Historically, hotel LTVs have ranged from about 50% up to 70-75% in aggressive cases (rarely 80%). Currently, with higher interest rates and memories of 2020, many lenders are closer to the lower end of that range or require strong recourse/guarantees. Debt service coverage ratios (DSCR) are set conservatively (often requiring 1.4x or higher DSCR at stabilized cash flow). Lenders also scrutinize reserve requirements – hotels must maintain FF&E (furniture, fixtures & equipment) reserves, typically 4–5% of revenue, to ensure the property is periodically renovated, which protects collateral value.

From an equity investor view, risk is managed by diversifying across markets and segments, and by asset management to adjust rates and costs quickly when trends shift. Many investors prefer hotels that have multiple demand drivers (business, leisure, group) to avoid reliance on one segment. The pandemic underlined the importance of flexibility – properties that could pivot to alternative uses (quarantine housing, work-from-hotel packages, etc.) fared a bit better.

Financing Trends and Capital Markets

Financing costs and availability for hotels have shifted significantly in the past two years. After record-low interest rates in 2020–21 that aided refinancing and acquisition activity (for those who could get loans during the pandemic), the Fed’s rate hikes in 2022–2023 have pushed borrowing costs much higher. As of H2 2023, hotel mortgage rates (especially for commercial mortgage-backed securities or bank loans) were in the high single digits, around 8%–9% interest for many deals. According to CBRE, average hotel cap rates were about 8.0% in Q3 2023 while the average hotel CMBS loan interest rate was ~8.4%, a very narrow spread that implies some deals face negative leverage (debt cost exceeding property yield). This dynamic has led to a notable decline in hotel investment activity – as of 2023, transaction volumes were down and many owners chose not to sell or refinance unless necessary.

Lending environment: Banks and lenders are more cautious on hotels post-COVID. Many regional banks that financed hotel construction or bridge loans have pulled back or increased credit standards. CMBS, which historically provided a chunk of hotel debt, also saw reduced issuance for hotels given performance uncertainties and higher yields demanded by bond buyers. Life insurance companies, which lend on lower-risk real estate, typically allocate only a small portion to hotels (given their volatility). That said, hotels that are well-stabilized in prime markets can still obtain financing, but often at lower leverage (50-60% LTV) and with more conservative underwriting (using maybe a 12-month trailing cash flow with pandemic-impacted months excluded, but also discounting unusually high 2022/23 profits if those are deemed above normal).

Financing structures: We’ve seen more creative financing, like preferred equity and mezzanine debt, being used to fill the gap between senior debt and owner equity. For construction, some developers are turning to debt funds or private equity financing at higher costs since banks tightened construction lending. Interest rate increases have also prompted more interest in fixed-rate debt to lock in costs, though many hotel loans remain floating (with caps) due to their shorter-term nature.

Refinancing risk is a concern for loans maturing in 2024–2025 that were initially underwritten at lower rates. Properties with weaker recovery might struggle to meet new DSCR requirements at higher rates, leading some owners to inject equity or seek extensions. Industry data shows CMBS delinquency rates for hotels did spike in 2020, but by late 2023 had mostly normalized as many troubled loans were resolved or modified. Still, if the high-rate environment persists, some hotels will face cash flow strain under more expensive debt service.

On a positive note, the strong operational rebound has improved many properties’ financial metrics, which helps in loan underwriting. Also, hotel assets are attracting interest from alternative lenders and investors who see upside in acquiring or financing hotels below replacement cost. In terms of new development, financing remains challenging, which is keeping supply growth low – ironically a benefit for existing assets and their lenders, as limited new competition supports better performance.

Capital flows: Hotel real estate investment trusts (REITs) and private equity funds are active players in the hotel capital market. Many hotel REITs restructured and sold assets during the pandemic and are now cautiously looking to grow portfolios again. Private equity groups have raised funds to target distressed or value-add hotel opportunities, though the distress hasn’t been as widespread as initially feared thanks to the quick recovery and lender forbearance. International capital (from Middle East, Asia) has also been buying high-profile U.S. hotels (e.g. the Qatari purchase of the NYC Plaza Hotel in recent years, and in Q3 2023 Qatar Investment Authority bought the Park Lane Hotel NYC for over $1 million per key). Such capital often comes in all-cash or low-leverage, indicating differing risk appetites.

ROI Expectations and Investor Returns

Equity investors in hotels generally seek higher returns than those investing in other real estate categories, to compensate for the higher risk and active management required. Typical unleveraged return expectations (cap rates) for hotels are in the range of 7–9% for stabilized assets in normal times. As noted, cap rates around 8% were average in 2023, which is higher than cap rates for say apartments or industrial properties that might be 5–6%. This means hotels must produce higher yield to attract investors.

For leveraged equity (most hotel deals use some debt), investors often underwrite for IRRs (internal rate of return) in the mid-teens or higher for value-add opportunities, and high-single-digit IRRs for stabilized core hotels. Prior to the pandemic, a well-located full-service hotel might trade at ~8–12 times EBITDA (a 8-9% cap rate equating to ~12x earnings multiple). Currently, some publicly traded hotel REITs are trading at discounts to their net asset values, implying implied cap rates even higher (which signals investor wariness or higher return demands).

To gauge ROI, consider that pre-2020, a common metric was that a hotel project should yield a cash-on-cash return of 10%+ by stabilization to be attractive. That is, if an investor put in equity, they’d hope for around 10% annual cash yield once the hotel is ramped up, with upside from appreciation. In today’s climate, with higher debt costs, those expectations have risen – investors might seek 12%+ cash-on-cash or find deals with upside through renovations or brand changes to meet return hurdles.

Another angle: total returns for hotel investments include income plus appreciation. According to some real estate investment forecasts, the five-year average annual total return for U.S. core real estate was upgraded to ~7.2% recently, but hotels, being riskier, would target higher – possibly low double-digits total return on a leveraged basis over a hold period.

Comparative ROI: Investors also compare hotel ROI to other uses. For example, if a hotel can be converted to apartments or another use, they’ll consider which yields more. Historically, hotels have had among the highest cap rates (i.e., highest required yield) of property types, reflecting the risk. However, in periods of high growth (like coming out of 2021–2022), hotel owners enjoyed outsized NOI increases which delivered strong short-term returns.

Valuation Metrics and Valuation Trends

Hotels are valued using a few primary approaches:

• Income approach (cap rates / EBITDA multiples): As mentioned, hotels trade on cap rates which are essentially NOI (net operating income) yields. Currently ~8% average cap rate means a hotel earning $8 million NOI might be valued around $100 million. However, cap rates vary widely by hotel type and location: a trophy luxury hotel in NYC or Honolulu might sell at a 4–6% cap (because of perceived stability and long-term value), whereas an older limited-service hotel in a tertiary market could be 10%+ cap. Cap rates also often factor a stabilized year – valuers may normalize the earnings. For instance, in early recovery, buyers looked at 2019 as a baseline for valuation since 2020–21 were abnormal.

• Price per Key (room): Another common metric is value per room. This can be useful for quick comparisons, especially within segments. For example, select-service hotels might trade around $100k per key in some markets, whereas luxury hotels in major cities can be $1M+ per key (as seen with the Park Lane sale in NYC at over $1 million/room). According to survey data, recent major hotel sales in the U.S. averaged about $228,000 per room in Q3 2023, up ~7.5% year-over-year. This average includes a mix of asset types. In Q4 2023, another survey showed an average ~$266,000 per key for larger deals, indicating that values have risen thanks to improved performance, despite higher debt costs. Investors and appraisers look at replacement cost as well – for instance, if it costs $250k per room to build a new hotel of similar quality, that often sets a ceiling or floor on valuations. Currently, with high construction costs, buying existing hotels below replacement cost has been a strategy for opportunistic investors.

• Revenue and RevPAR multiples: Some valuations, especially for franchises, consider metrics like a multiple of room revenue. For example, economy hotels might sell for around 3–4 times annual room revenue, whereas luxury could be 10+ times revenue, depending on profitability. RevPAR is also used to benchmark – a rule of thumb from the past: a hotel’s value per key often correlates to roughly 1,000 times its daily RevPAR (very rough). So a hotel with $100 RevPAR might be around $100,000 per key; if it achieves $200 RevPAR, maybe $200k per key, etc., adjusted by margins and growth prospects.

• EBITDA multiple: Similar to cap rate but considering total earnings before interest, taxes, depreciation, etc. Many hotel transactions pre-2020 fell in a range of ~12x EBITDA for stabilized assets (which is an 8–8.5% cap rate), with higher multiples (15–20x) for ultra-luxury or those with significant long-term growth potential, and lower multiples for struggling or lesser location hotels. For instance, a recent report noted a luxury resort sold for about a 12.6x EBITDA multiple (equating to roughly a 7.4% cap rate), illustrating how pricing translates between these metrics.

Valuation trends: Post-pandemic, hotel values dropped in 2020, then rebounded strongly by 2022 for many assets, especially leisure-oriented ones. By 2023, industry valuation indices indicated that many hotels had recovered or exceeded 2019 values in nominal terms – although high interest rates in late 2022/2023 put downward pressure on values via higher cap rates. The result is a bit of a mixed picture: hotels’ cash flows are up (which raises value), but cap rate expansion (due to interest rates) offsets some of that. HVS analysis in 2024 showed that higher cap rates had implied value reductions of 10–20% compared to pre-pandemic, if using static income. However, because hotel net incomes grew (with inflation and recovery), actual value losses were often less. In inflation-adjusted terms, some hotels are still below 2019 value.

Lender/investor considerations on valuation: They look at break-even occupancy, debt yield (NOI/loan amount), and scenario analyses (e.g. how a 1-point Fed rate hike or a 5% drop in RevPAR affects value). Loan underwriting now often uses higher cap rate assumptions (maybe 50-100 bps above going-in cap rate) to ensure there’s a value cushion. For investors, a key metric is yield on cost – after acquiring and any renovation, what yield (cap rate) they get on their total investment. With higher construction costs, acquisitions of existing hotels at a good yield can be appealing.

Return on Investment (ROI) expectations: In summary, lenders typically want a risk-adjusted return (interest) that is higher than for other real estate loans – currently hotel loan spreads are several hundred basis points above Treasury yields. Investors seek ROI that often comes from both operating cash flow and the potential to sell at a profit if market conditions improve (capital appreciation). Many private equity investors aim for, say, a 15% IRR over a 3-5 year hold on a hotel by improving operations or market recovery.

In practical terms, hotel investors are looking at cap rates in the 8-9% range and leverage such that cash-on-cash returns can hit low double digits in the next few years, given the risk. They also watch valuation metrics like EV/EBITDA for publicly traded hotel companies (which as of 2025 might be around 12-14x for big chains and hotel REITs, down from higher levels pre-2019, indicating somewhat restrained valuations).

Finally, an emerging consideration is ESG (Environmental, Social, Governance) factors – some institutional investors are increasingly evaluating hotels on energy efficiency and community impact, which could influence financing terms (e.g. green loans) or exit cap rates for properties with strong ESG credentials. While not yet a primary driver, it’s a trend to watch as the industry moves towards 2030.

In conclusion, for both lenders and investors, the U.S. hotel industry offers attractive yields and growth prospects, but with heightened volatility and operational complexity. Prudent underwriting, risk management (through lower leverage or interest rate hedging), and selection of strong markets/operators are crucial. Those financing hotels today are demanding stronger fundamentals (proven performance post-COVID) and are often pricing deals more conservatively – e.g., requiring higher cap rates or lower LTV. Yet, the upside remains compelling: as travel continues to thrive, well-bought hotel assets can generate returns superior to many other real estate investments. The alignment of interest between brands, owners, and lenders on maintaining quality and controlling costs will be key to sustained ROI.

Sources: Industry data and forecasts were gathered from reputable sources including IBISWorld, STR, AHLA/Oxford Economics, Statista, Deloitte, PwC, and CBRE among others, ensuring a current and evidence-based analysis . These provide the quantitative backbone for the trends and insights discussed above. Each segment of this report has cited specific sources to substantiate facts and figures, offering a transparent link to the underlying research. The combination of these sources presents a comprehensive picture of the U.S. Hotels & Motels sector as of 2025 and looking forward to 2030.