The U.S. Hotel Market Is Entering a New Cycle — But Not Every Hotel Will Benefit

After more than 20 years working with hotel assets, real estate investment and development in Europe, I have learned to be careful with the word “growth.”

A market can grow while many individual assets become less profitable.

This is exactly what makes the U.S. hotel market interesting today.

The headline numbers are improving. In Q2 2026, U.S. hotel RevPAR increased 5.7% year over year, driven primarily by a 4.4% increase in ADR, while occupancy grew only 0.8%.

But underneath these numbers, a much more important transformation is taking place.

The hotel market is becoming increasingly divided between assets that can command a premium — and assets competing mainly for occupancy.

For investors, developers and hotel owners, I believe several structural trends matter more than the headline RevPAR number.

Premium Is Separating From the Middle

One of the clearest developments in the U.S. market is the continued divergence between customer segments.

Luxury hotels have been able to maintain pricing power far better than economy and lower-midscale properties.

JLL reported that in 2025 RevPAR for luxury properties increased by approximately 3%, while midscale and economy hotels declined.

This tells us something important.

The higher-income traveler is proving more resilient, but also more demanding.

For hotel owners, simply being “upscale” is no longer enough.

The property needs a reason to command a premium.

Location remains important.

Brand remains important.

But increasingly, so do experience, design, wellness, food, recovery, exclusivity and the ability to create something the guest cannot easily compare on Booking.com.

ADR Is Growing Faster Than Occupancy

The second trend is equally important.

Hotel revenue growth is increasingly being generated through price rather than dramatically higher occupancy.

That changes the way I look at hotel investment.

If occupancy cannot grow indefinitely, the question becomes:

How much more value can we create from every guest and every square foot of the property?

This pushes the industry beyond RevPAR.

TRevPAR becomes increasingly important.

Rooms remain the foundation of the business, but F&B, wellness, recovery, experiences, memberships, premium room categories and other ancillary services can materially change the economics of an asset.

The hotel of the future cannot rely only on selling beds.

NOI Is Becoming More Important Than RevPAR

A hotel can report higher revenue and still become a worse investment.

That sounds obvious, but it is particularly relevant in the United States today.

Labor, insurance, utilities, supplies and other operating expenses remain under significant pressure. According to AHLA, rising expenses are one of the principal reasons hotel profitability has still not fully recovered to its 2019 level.

This means I am increasingly interested not simply in hotels capable of increasing revenue, but in concepts capable of increasing revenue without increasing operating complexity at the same speed.

That is an important distinction.

The winners will not necessarily be the hotels offering the most services.

They may be the hotels that monetize their space and customer relationship most efficiently.

Existing Hotels Are Becoming More Interesting

Another development deserves much more attention.

New hotel supply in many major U.S. markets remains constrained.

Financing and construction costs have made new development difficult, and JLL reports that construction pipelines in most major U.S. cities remain below 2% of existing hotel supply.

For owners of existing assets, this is potentially very good news.

For investors, it creates another opportunity.

Instead of developing from zero, it may increasingly make sense to acquire an existing hotel below replacement cost and reposition it.

Change the concept.

Change the customer.

Improve the room product.

Reprogram underutilized areas.

Introduce new revenue streams.

Improve operations.

In this environment, repositioning may sometimes create a better risk-adjusted return than ground-up development.

Select-Service and Extended-Stay Are No Longer Secondary Segments

There is another part of the U.S. market I find particularly interesting.

Select-service and extended-stay hotels.

Historically, investors often considered them less exciting than full-service hotels or resorts.

Economically, however, the picture is compelling.

Their leaner operating structures, lower staffing requirements and more predictable margins have made these sectors increasingly attractive to investors.

This is not simply a hospitality trend.

It reflects a broader change in how people travel and live.

Business travel is changing.

People combine work and leisure.

Assignments become longer.

Families relocate temporarily.

Remote professionals stay for weeks rather than days.

Healthcare, education and corporate projects generate extended demand.

The boundary between hotel, serviced apartment and temporary residence is becoming less clear.

I expect this hybridization to continue.

Wellness Is Moving From Amenity to Product

This is the trend I am personally watching most closely.

For decades, wellness in hotels meant a fitness room and, in better properties, a spa.

That definition is becoming outdated.

Sleep quality, recovery, nutrition, fitness, stress management, thermal experiences, air quality and preventive health are gradually becoming part of the hospitality product itself.

For luxury properties in particular, wellness can influence both room rates and ancillary spending.

But I would make an important distinction:

Installing wellness equipment does not create a wellness business.

The opportunity lies in integrating wellness into the guest journey and the economics of the property.

A better sleep environment can support a premium room category.

Recovery services can create additional revenue.

An underperforming spa can become a different type of wellness facility.

Hotels can partner with external medical or longevity providers rather than attempt to become clinics themselves.

WellTech can make parts of this experience almost invisible — through light, air, acoustics, temperature and room automation.

The interesting question is no longer:

“Does the hotel have a spa?”

It is:

“How much economic value does wellness create for the asset?”

Capital Is Returning to Hotels

Finally, the investment market itself is moving.

U.S. hotel transaction volume reached approximately $24 billion in 2025, up 17.5% year over year, according to JLL.

Debt conditions have improved, private equity remains active and high-net-worth and international investors are becoming increasingly visible in the sector.

There is another reason hotels are attracting attention:

In many cases they can still be acquired at a meaningful discount to the cost of building an equivalent property today.

This creates an interesting combination:

limited new supply + existing assets below replacement cost + improving debt markets + opportunities for operational repositioning.

For a real estate investor, that deserves attention.

What I Take From All of This

I do not think the next cycle in U.S. hospitality will reward every hotel equally.

The market is becoming more selective.

Generic properties will find it increasingly difficult to compete purely through occupancy.

Assets with strong locations, efficient operations and a clear reason for the guest to pay more should be in a much stronger position.

And I believe some of the most interesting opportunities will not necessarily be new hotels.

They will be existing assets that can be transformed into a better business.

After more than two decades in European hotel and real estate markets, this is precisely the part of the U.S. hospitality sector that I want to understand deeper through ERA Smart Invest.

Not simply where hotel demand is growing.

But where the next layer of value can be created.

Sergey Vakhnenko
Founder, ERA Smart Invest LLC
CEO, Dominart Real Estate GmbH