The hotel industry in the United States faces complex challenges in 2025, according to Jan Freitag, senior vice president of lodging insights for STR and national director of hospitality analytics for the CoStar Group. During the “State of the U.S. Hotel Industry” presentation at the ULI 2025 Spring Meeting in Denver, Colorado, Freitag highlighted the challenges facing the hotel business amid macroeconomic uncertainty.
“Being in the U.S. hotel industry right now is a little bumpy, because we’re not growing demand very quickly, and we’re not growing room rates very quickly,” Freitag said. “This is the state of the union for hotels right now. Of course, this can all change in a tweet.”
Oxford Economics has repeatedly adjusted U.S. gross domestic product growth forecasts, Freitag noted, dropping projections from 2.4 percent per annum in mid-March to just 1.2 percent a month later. Consumer sentiment remains “near historic lows,” which has made it difficult for the hotel industry to anticipate booking demand, even for this summer. “Will everything be more expensive?” Freitag said. “Or will the tariffs go away? That makes people uncertain, and uncertainty breeds inaction.”
The first quarter of 2025 showed a concerning trend in revenue per available room (RevPAR), which declined from 4.3 percent growth to -0.3 percent growth during the year’s first four months. Some of these fluctuations were due to temporary factors, however: tens of thousands of people were displaced by Hurricane Helene in the Southeast and by wildfires in Los Angeles, and the presidential inauguration boosted Washington, D.C. numbers in January. After filtering out these anomalies, though, Freitag pointed to an “underlying weakness” in the market.
Even though investors tend to see the hospitality industry as an inflation hedge—because, theoretically, hotels can raise per-night room rates much more quickly than owners of office buildings or other asset classes can adjust leases—in actuality, Freitag said, “We are not keeping track with inflation in our average daily rate increases.” He noted that the annual inflation rate runs at approximately 2.0 or 2.5 percent, but average daily rate growth is projected to be only 1.6 percent. “As everything gets more expensive, revenues aren’t growing as quickly [and] the bottom line gets hit,” he said. “That’s what owners are wrestling with right now.”
Freitag pointed out that occupancy rates remain flat, suggesting that “supply and demand growth have to be basically in equilibrium.” As a result, any RevPAR growth must come almost entirely from average daily rate (ADR) increases, which are currently underperforming.
One bright spot in Freitag’s analysis was the luxury hotel segment, which has undergone remarkable growth in recent years. “In 2019, there were 180 hotels globally that had an ADR above $1,000, and last year it was almost 580, of which 80 were in the United States,” he said. “For people in that income [bracket], money is not the issue, but [the experience] better be perfect.”
Another significant concern is the decline in international visitors to the United States. Data from the National Travel and Tourism Office indicated that international inbound travel was down 12 percent in March 2025, he said. Although Freitag acknowledged that international travelers represent only about 5 percent of total U.S. hotel room demand, he expressed concern that political rhetoric related to tariffs is affecting international travelers’ decisions. “Saying, ‘you’re all stealing from us’ matters. People are [replying], ‘Well, then maybe I’ll go somewhere else.’”
Land travel from Canada has declined sharply, too, dropping by nearly a third between March 2024 and March 2025, which Freitag attributes to political tensions. “The submarkets that hug the Canadian border are clearly seeing occupancy deterioration,” he observed, adding that many Canadian travelers might “bypass the U.S. and go straight to Mexico” for their vacations.
On the development front, Freitag presented a relatively stable picture, with 140,000–160,000 rooms under construction nationwide—a figure that has remained consistent for three years. “We are not overbuilding,” Freitag said. Most new construction focuses on limited-service properties rather than full-service hotels with ballrooms and extensive food and beverage operations.
Asset transactions have slowed considerably, with first-quarter 2025 hotel sales reaching only $2.8 billion compared to $4 billion in the first quarter of 2024. JLL had projected a 20 percent increase in transaction volume for the year, but Freitag said, “Everybody’s waiting for the Fed to cut a hundred basis points or something, and then we will obviously see some transaction activity.” The cost per room key is going up because of inflation, he added.
Despite these challenges, investor sentiment toward hotels has been surprisingly strong. “The CMBS [commercial mortgage–backed security] market for hotels is absolutely open for business,” Freitag said. “The delinquency rate is very low, post-COVID. And I never thought I’d see this, but last year and in 2023, we securitized more hotels than offices. That shouldn’t happen in any universe, right? So CMBS continues to be very, very healthy in the U.S. hotel industry.”
