Navigating the Inevitable Reset
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The hospitality industry, particularly in the United States, is at an inflection point. Economic indicators are flashing caution, sentiment is softening, and the easy growth of the past few years is giving way to a more sobering reality. At Horwath HTL, we believe this environment is not one to fear – but one to understand and strategically engage with.
While many in the market are debating the signs, the implications are increasingly clear. Even Goldman Sachs – the standard-bearer for Wall Street foresight – has wavered in its outlook, raising the probability of a U.S. recession to 35% in late March. Their rationale? Slowing growth, weakening household and business confidence, and a policy climate more tolerant of economic discomfort.
For the hospitality sector, these crosswinds are real. But so is the opportunity.
Cooling, Not Crashing
According to CoStar, U.S. hotels are experiencing a meaningful deceleration:
- Real GDP growth is forecast below long-term averages, and sentiment indicators are falling. The S&P 500 is down 4.4% year-to-date, and consumer confidence dipped from 105 to 93 in March.
- February RevPAR grew by 1.9%, a positive—but modest—gain that barely outpaced rising costs. ADR growth of 1.4% trailed inflation, while occupancy ticked up just 0.5%.
- Margins remain under pressure as expenses continue to outpace top-line revenue. Gross operating profit (GOP) margins declined by 0.2 percentage points on a trailing basis.
- Short-term rentals (STRs) continue to take market share, growing demand by 4.6% year-over-year compared to 1.5% for traditional hotels. STR RevPAR is up 5.2%, and their ADR now exceeds 140% of 2019 levels.
In other words: the industry is softening, but not collapsing. The fundamentals remain sound. What we’re witnessing is not distress—it’s dislocation.
Capital Market Conditions Are Shifting
While operational indicators are mixed, capital market dynamics are starting to open doors for institutional and private investors:
- Interest rates are projected to decline by up to 110 basis points by Q4, bringing much-needed relief to financing structures.
- Credit spreads have narrowed, and the hotel CMBS market is stirring again—with average loan issuance increasing nearly 100% year-over-year in February, with continued transected to have occurred in March once the data is revealed later this week.
- Transaction volume is low, but poised to rebound as sellers recalibrate and buyers gain clarity.
- Asset valuations are starting to correct. Lenders are slowly returning. Well-capitalized investors—particularly those with a long horizon and dry powder—will be rewarded for entering early, not late.
Global Turbulence Is a Local Opportunity
Goldman Sachs’ public uncertainty is a reminder: even the best minds are struggling to time the turn. For hospitality investors, however, timing perfection isn’t necessary. What’s essential is understanding the cycle and being positioned before the competition re-engages.
The return of inbound international travel remains uneven. Coastal markets like Los Angeles and New York are still operating below 2019 visitation levels. Yet outbound travel is surging—suggesting pent-up demand exists, but isn’t yet directed toward domestic leisure. That pendulum will swing back.
And when it does, hotels with the right fundamentals—location, operational efficiency, strong brand alignment—will benefit from a reawakened demand curve.
What We’re Seeing Among Our Clients
Across our advisory work, Horwath HTL is observing a clear pattern: well-capitalized investors and ownership groups are beginning to reengage—but with a more selective, strategic lens.
We are actively helping clients evaluate assets under pressure, both from an operational and capital structure standpoint. In many cases, the current climate has triggered renewed focus on asset management, margin preservation, and, in select instances, preparing assets for sale where long-term hold strategies no longer align with ownership objectives.
We’re also supporting clients who are using this period to assess market entry—particularly into urban full-service, select-service portfolios, or resort repositioning opportunities. These conversations are being driven not by distress, but by the recognition that price discovery is beginning, and waiting for consensus often means paying a premium.
It’s a moment where smart capital isn’t chasing growth—it’s identifying underpriced stability, and taking a disciplined, forward-looking view.
