US hotel investors are increasingly positive about the direction of the market, with 94% saying they expect to maintain or increase their hotel investments this year, driven by a more optimistic outlook for total returns and distressed investment opportunities. This is up from 85% of investors who had the same plans last year, according to a hotel investor intentions survey conducted by CBRE.
Only 6% of respondents said they expect to decrease their hotel investments this year, down from 16% in 2024. Decelerating revenue per available room (RevPAR) growth was the primary factor along with continued concerns around labor, insurance and capital costs.
The report forecasts RevPAR will grow 2.2% for urban locations during the coming year, driven by increased group, business transient and international travel. Meanwhile, leisure demand will likely continue to normalize with modest average daily rate gains leading to 1.5% RevPAR growth for resort locations.
Investors continue to prefer value-add and opportunistic hotel investments, with more than three-quarters of survey respondents targeting such assets this year compared with 72% last year. Only 11% of respondents said they are targeting distressed assets this year, down from 18% last year.
Central business districts and resorts were the locations most favored by investors surveyed, while higher proceed options are the most popular chain scales, CBRE said. Airport and suburban assets were the least attractive among those surveyed.
Nearly 60% of survey respondents said full-service hotels are their most likely target for acquisition or development this year, compared with 20% in 2024. Perhaps this is because of the resurgence of business transient and group travel and the rise in return-to-office mandates. Investor interest in extended-stay assets remained modest, cited by only 14% of respondents as an acquisition target this year vs. 13% last year, said CBRE.
For the second year in a row, New York City topped CBRE’s list of most attractive investment markets within the hotel space. The market benefits from limited new hotel supply, short-term rental unit restrictions and strong consumer dynamics. San Francisco ranked second and Dallas ranked third. More investors named Washington, D.C., and Hawaii as attractive investment markets this year versus last year, while expectations for Miami cooled.
To spur additional investment activity, investors said the federal funds rate will have to come down to about 3.75%. That is in line with CBRE’s prediction of a rate range of 3.5% to 3.75% to close the year.