2025 Reflections on the Hotel Industry
Time Favors Texas
As 2026 begins, below is a brief reflection on 2025 for the hotel commercial real estate (CRE) industry.
BLUF: TEKMAK Development is focused on driving strong top-line performance at our operating hotels, improving flow-through to the bottom line, and executing efficiently on our hotels under construction, which are currently running on-time and on-budget.
Industry Performance:
- 2025 started with optimism but experienced a gradual monthly decline in year-over-year (YoY) Revenue per Available Room (RevPAR) resulting in an overall YoY decline for 2025.
- The cause of lower RevPAR is occupancy, which remains below pre-COVID 2019 numbers.
- Average Daily Rate (ADR) hit a record high in 2025.
- Industry sentiment projects a flat or slightly improved 2026.
- Rising cost of operational labor, equipment and supplies continued to squeeze margins in 2025.
- There was some easing of these pressures in Q4 and the trend appears to be flat or marginally favorable heading into 2026.
- Hotels that are disciplined in operations and maintain strong guest satisfaction will outperform their market competitors.
- The expected increase in 2025 transactions driven by the debt maturity wall and decline in rates did not materialize in the first 3 quarters.
- Activity began to pick up in Q4 and early indicators are that declining rates and increasing liquidity will continue this trend in 2026 with a higher level of transactions.
- Increased activity in 2026 will help with price discovery, which has been very limited the past few years, and potentially compress hotel cap rates over the coming 18-24 months.
- Many of the major brokerage firms such as JLL, HVS and more are all suggesting that their books are fuller in Q1 2026 than previous quarters. Below is a quote from one of our primary brokers supporting this sentiment as well:
"I generally agree. Just looking at our pipeline, we have $500MM under contract to close in Q1 - all with non-refundable deposits. We are also scheduled to launch approximately $450MM in the next 30 days. To further support next year’s activity, we have seen a material increase in BOV requests from our institutional clients who are out of options and need to sell."
- US hotel construction pipeline indicates that new supply is slowing.
- Current market cycle suggests now is the time to build and buy.
- One added perk of new hotel construction is the meaningful bonus depreciation hotels can take advantage of to investors' benefit following the passing of the One Big Beautiful Bill.
- Our current outlook is that the cycle will begin to turn in about 2.5+/- years, starting a multi-year window where sale fundamentals become more favorable.
Texas:
- We are big believers that time favors Texas, with Texas continuing an upward economic trajectory that will benefit most asset classes.
- Texas continues to have explosive demographic growth, and is one of the top states in the nation for commercial real estate, corporate relocations, startups, banking/finance (e.g. y'all street) and more.
2025 was a year of mixed signals, with early optimism met with mid-year uncertainty. The hotel industry maintains measured optimism that performance is more likely to be flat or marginally improved, with the difference between success and stagnation dependent on the commitment and abilities of the asset managers and operators.
