As 2025 begins, hotel dealmakers in the U.S. face a complex landscape where opportunities vary dramatically by location and property type.
That’s the view of Dan Peek, President, Hotels & Hospitality, Americas, at hotel brokerage JLL. Peek has a notable perspective because JLL has helped trade more than $60 billion in hotel assets over the past six years.
Peek expects the post-pandemic recovery to continue, with market performance rotating from Sun Belt states to major urban centers.
Houston currently leads U.S. markets in performance, while New York and Chicago have shown recent strength — a pattern that could extend into 2025 as office attendance and corporate travel patterns continue to normalize.
Differing Dynamics
The U.S. hotel transaction market varies by location and type of hotel. Properties below $50 million —typically select-service hotels — remain liquid as local entrepreneurs and regional banks keep capital flowing.
Trophy assets above $250 million are also finding buyers, particularly among real-estate investment trusts REITs like Host Hotels and specialist investors like Trinity, Peek said.
But the heart of the hotel transaction market — full-service hotels between $50-250 million— has mostly seized up.
These properties face a triple whammy: They generally depend on institutional buyers that have better investing options elsewhere, typically require substantial leverage at a time of high interest rates, and often need significant capital expenditures when construction and renovation costs have jumped 20-40% since 2019, Peek said.
Labor costs and property insurance have also surged, squeezing EBITDA margins even as revenue recovers.
So 2025 may not be a deal-making frenzy. Many hotel owners still remember getting high prices in 2019 and want to sell based on that benchmark. Meanwhile, buyers are looking at today’s higher interest rates, renovation costs, and rising worker wages and believe that they can’t pay 2019 prices when hotels’ bottom-line financial performance has softened.
Many sellers of hotel assets are holding out, hoping interest rates will drop and make their asking prices reasonable again. Peek is optimistic that rate cuts may continue. Fed officials have indicated they now expect to cut rates by a half point in 2025, the AP reported.
Limited Supply Supports Hotel Rates
Peek said constrained supply will help support the performance of existing properties, enticing people to buy hotels. He agrees with CBRE’s forecast of a compound annual growth in supply of merely 1% over the next five years, below the industry’s long-term historical average of 1.6%.
“The inability to develop new product is significant,” Peek said. While select markets like Nashville, Austin, and Miami continue to see construction cranes dotting their skylines, many major gateway cities face significant development hurdles.
New York City stands out as particularly constrained. Following recent changes to local laws, Peek notes that only one new hotel permit was pulled in Manhattan in 2024 (for the luxury 130-room Little Nell, expected to open in 2026). Similar restrictions hamper hotel development in other key markets like Boston, San Francisco, and Los Angeles.
Limited new supply could support rate performance, even as U.S. hotel occupancy remains about 3% below 2019. Peek indicates that higher room rates can often generate better profitability for hotel owners even if occupancy is slightly lower.
D.C. as a Bright Spot?
Looking ahead to 2025, Peek singled out Washington D.C. as potentially the strongest performing market, driven by the presidential inauguration, convention business, and possible federal workforce policies requiring increased office attendance.
He also cited major corporate relocations to the capital region, including Boeing and Raytheon, as positive indicators of hotel demand.
“Follow the money,” Peek said. “New York used to be the focus because that’s where the money was, but big business leaders may be spending a lot of time in D.C. this year, too.”
Wealth Effect
As for luxury hotels, Peek sees sustained demand supported by growing global wealth.
“There are more millionaires and billionaires than there’s ever been before in the history of the world,” he noted.
Luxury hotel deals have seen renewed interest from sovereign wealth funds and family offices partly because the buyers are themselves users of the high-end product.
The economics of luxury hotel development have improved with the rise of branded residential components, which often are lucrative.
So Peek expects luxury properties to enjoy strong demand in markets popular with affluent business and leisure travelers. At the same time, budget and economy segments will likely continue to struggle, reflecting the diverging fortunes of U.S. high and low-end consumers.
Accommodations Sector Stock Index Performance Year-to-Date
What am I looking at? The performance of hotels and short-term rental sector stocks within the ST200. The index includes companies publicly traded across global markets, including international and regional hotel brands, hotel REITs, hotel management companies, alternative accommodations, and timeshares.
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