2026 U.S. Hotel Outlook: Domestic Demand Supports Growth as Financing and Supply Risks Rise

2026 U.S. Hotel Outlook: Can Domestic Demand Sustain the Hospitality Recovery?

The U.S. hospitality market entered the second half of 2026 with improving occupancy, stronger revenue growth and greater transaction momentum. Domestic group and corporate travel are positioned to support demand following the World Cup, but subdued international visitation, uneven consumer spending, new select-service supply and elevated borrowing costs remain important risks. Market and property selection will be critical because performance increasingly depends on the source of RevPAR growth, local construction exposure and an asset’s ability to absorb higher operating and financing costs.

What is the 2026 outlook for the U.S. hotel market?

National hotel fundamentals improved during the first seven months of 2026 after occupancy declined in 2025. From February through May, occupancy was already running more than 100 basis points above year-earlier monthly levels, while revenue increased 5.2 percent. The World Cup accelerated that momentum, lifting year-over-year revenue by 8.6 percent in June and 9.0 percent in July.  

The year-end forecast calls for: 

• Supply: A 0.9 percent year-over-year increase, with approximately 81,000 rooms expected to open. 

• Occupancy: A 70-basis-point increase to 63 percent. 

• Average daily rate: A 2.8 percent increase to $165.30. 

• Revenue per available room: A 3.8 percent increase to an annual average of $104.01.  

These projections indicate a broader recovery, but the durability of that improvement will depend on whether domestic bookings can replace event-driven demand and offset continued weakness in international travel.  

What will drive hotel demand after the World Cup?

Domestic group and corporate travel are the leading sources of post-event support. 

Group bookings increased 2.4 percent year to date through June, reaching 129 million room nights. Convention calendars and government business supported rate growth across both primary and secondary markets. Many groups, however, continue to reserve rooms within the same quarter, reducing operators’ forward visibility even when near-term demand is strengthening.  

Corporate travel may provide an additional lift, especially for higher-end hotels. Corporate bookings for August through October were running between 5.6 percent and 8.6 percent ahead of the prior-year pace. This trend should favor properties with exposure to business travelers, meetings and convention activity.

Why does international visitation remain a risk?

The conclusion of the World Cup removed a significant source of temporary demand while international visitation remained subdued. 

Overseas arrivals declined 1.8 percent year over year in June, despite the World Cup beginning that month, and year-to-date overseas visitation was down 4.3 percent. Canadian travel also remained under pressure. Canadian-resident return border crossings from the United States fell 25.4 percent in 2025 and remained near those reduced levels in early 2026.  

Renewed trade tensions could delay a recovery in Canadian travel. Although the tariffs discussed in the report apply to goods rather than travel services, the escalation may reinforce unfavorable sentiment that has already influenced destination choices. Host markets and other destinations that rely heavily on international guests could therefore face a more constrained demand environment.

Which hotel segments are performing best?

Full-service hotels continued to outperform lower-tier properties in both occupancy and rate growth. 

During the year ended in July, full-service average daily rate increased 4.4 percent. Select-service ADR rose 1.3 percent, while limited-service ADR declined 1.0 percent. Occupancy followed a similar pattern: full-service occupancy increased 70 basis points, select-service rose 60 basis points and limited-service improved only 40 basis points.  

The divergence reflects uneven consumer spending power. Inflation and slower income growth have placed greater pressure on price-sensitive travelers, while higher-income guests retain more capacity to travel and absorb elevated room rates. Travel prices declined from May through July but were still 7.1 percent above the prior-year level in July.

Hotel segment comparison 

How will new hotel supply affect performance?

Approximately 143,000 rooms were under construction as of July, with select-service properties representing more than half of the active pipeline. Upper-midscale hotels alone accounted for 33.5 percent of rooms underway.  

The local impact will vary significantly. Limited inventory growth helped Chicago and St. Louis convert improving demand into 210-basis-point occupancy gains. RevPAR increased 6.5 percent in Chicago and 8.0 percent in St. Louis during the 12 months ended in July. Austin and Jacksonville, by contrast, remained under pressure as supply additions outpaced demand. Nashville also experienced substantial development, but booking growth was sufficient to improve fundamentals.  

Seattle-Tacoma, Minneapolis and Philadelphia had the least construction exposure among major markets, with rooms underway equal to 0.2 percent, 0.5 percent and 0.6 percent of existing inventory, respectively. Indianapolis, Cincinnati and Phoenix had the greatest exposure and may require stronger demand growth to prevent pressure on occupancy and pricing.

Broad hospitality labor-cost growth moderated, but property-level pressures remain uneven. 

Leisure and hospitality compensation increased 2.6 percent during the year ended in June, compared with a 3.3 percent increase for all private-industry workers. Hotel-specific wage and worker-protection requirements, however, remain concentrated in several high-cost gateway markets. In Los Angeles, the minimum wage for covered hotel workers increased to $25 per hour in July 2026, alongside additional healthcare and time-off requirements.  

How hotels generate RevPAR will be particularly important. ADR-led growth generally produces better profit conversion because it requires limited incremental operating expense. Occupancy-led growth generates additional housekeeping, utility and supply costs. Operators that can increase rates without sacrificing demand may therefore achieve stronger margin expansion.

Hotel transaction velocity increased by more than 15 percent during the year ended in June. Properties priced between $1 million and $5 million represented approximately half of all trades, while preliminary second-quarter sales activity reached its highest quarterly level since early 2023.  

Financing remains a constraint. The 10-year Treasury yield moved above 5 percent, while the Federal Reserve raised its benchmark target range to 3.75 percent to 4.00 percent. Elevated energy prices and geopolitical risk further complicated the cost outlook. In this environment, well-capitalized investors able to transact at lower leverage may have an advantage over buyers relying on a meaningful near-term decline in interest rates.  

Thirty percent of outstanding hotel and motel mortgage balances are scheduled to mature in 2026. Although this is not expected to create uniform distress, refinancing may require loan extensions, recapitalizations or additional equity as replacement debt is resized to current debt-service capacity. Owners unwilling or unable to contribute new capital could create acquisition opportunities.