- Hotel performance increasingly tied to asset quality, location.
- U.S. Q1 RevPAR growth of 3.8 percent above expectations.
- Luxury leads with 7.4 percent RevPAR growth in Q1 2026.
Bethesda-based real estate finance and advisory firm Walker & Dunlop released its Hospitality Outlook 2026 titled “Capital, Divergence and the Search for Durable Returns.” The report found a widening divide across the lodging sector. It said hotel performance is increasingly driven by asset quality, location and traveler demographics rather than broader market trends. U.S. first quarter RevPAR growth came in at 3.8 percent, above expectations, according to the report.
The gap between the top and bottom of the market is becoming harder to ignore. Top-end hotels, including luxury, upper upscale and upscale properties, posted 68.7 percent occupancy and an ADR of $216, up 1.66 percent year over year. Economy hotels posted 53.61 percent occupancy with an ADR of $70, down 2.87 percent. Marriott reported U.S. and Canada luxury RevPAR grew 7.4 percent year over year in the first quarter of 2026, while select-service RevPAR grew 2.7 percent.
The report also highlighted differences in travel demand across segments. Luxury and upscale hotels continue to benefit from spending by high-end travelers. Leisure demand is stronger in some destinations than others, while business and group travel are recovering at different rates due to hybrid work trends and convention activity in key markets. As a result, asset-level analysis is becoming more important than broad market assumptions.
"Hospitality is no longer a market where broad assumptions drive performance," said Jay Morrow, W&D senior managing director for capital markets hospitality advisory. "Investors today are looking beyond broad market narratives and focusing on the fundamentals of individual neighborhoods, submarkets and demand drivers."
Debt and costs remain under pressure across the sector. Debt markets are active, with lenders competing for strong, high-quality deals. Equity investors are more cautious, with higher return expectations and institutional partners looking for tighter alignment. Labor costs remain a key pressure point, with wages expected to rise about 5 percent in 2026. Hotels are also turning to AI tools for scheduling, revenue management and staffing to help protect margins.
Evan Hurd, W&D managing director, said two assets in the same city can produce very different outcomes.
"The ability to identify resilient micro-locations and align capital accordingly is becoming a key differentiator for investors,” he said.
On the supply side, U.S. hotel rooms under construction totaled about 132,000 at the end of the first quarter, down 9.2 percent year over year. Projects set to start within the next 12 months fell 5.3 percent to around 249,500 rooms. In many markets, buyers are choosing to buy and reposition existing hotels instead of building new ones. Some assets are selling at 50 to 60 percent of replacement cost.
Another report by JLL Hotels & Hospitality Group shows U.S. luxury hotel investment rose sharply in the first quarter, led by ultra-luxury assets. It said deal activity in the segment jumped 115 percent year over year, with ultra-luxury RevPAR at $872, well above pre-pandemic levels.
