Hospitality

• Hotel performance remains flat, with modest RevPAR gains as higher rates offset softer occupancy; outlook hinges on macro stability and a potential rebound in international travel from events including the 2026 FIFA World Cup.

• AI adoption is accelerating across hospitality, driving scalable personalization, dynamic pricing, and operational efficiencies that enhance profitability and guest engagement.

• A widening performance gap underscores continued premiumization, with luxury hotels thriving on exclusivity while economy segments face pressure from weaker demand and alternative lodging options.

Hotel sector performance has remained largely stagnant over the past year, marked by a marginal gain in revenue per available room (RevPAR). According to STR data as of August 2025, year-to-date RevPAR grew by 0.2 percent, driven by a 1.0 percent increase in the average daily rate (ADR), which was offset by a 0.8 percent decline in occupancy. Against the backdrop of this stagnant growth, the sector is being shaped by transformative trends that will define its trajectory in 2026 and beyond.

One of the defining themes shaping the industry is the ongoing rapid rise of artificial intelligence (AI). Adoption of AI is helping deliver more personalized guest experiences, optimize revenue management, and identify meaningful cost-saving opportunities at both the company and property levels. In addition, AI has emerged as a disruptive marketing channel, as travelers are increasingly turning to AI platforms for trip inspiration, itinerary planning, and hotel recommendations.

Beyond AI trends, the bifurcation in hotel performance between higher-priced segments and economy segments has not only persisted but intensified, compared to last year. This widening gap has contributed to the continued premiumization of the hotel industry, where luxury hotel companies seek to differentiate themselves through exclusivity and distinctive experiences. 

At the same time, international travel has become a significant headwind for the industry, driven by shifting geopolitical dynamics and more restrictive travel policies. Looking ahead, however, there are signs of a potential recovery in 2026, with the FIFA World Cup expected to serve as a major catalyst for inbound demand and a possible turning point for international tourism. 

In addition to enabling more personalized guest experiences, AI is increasingly being deployed to improve hotel profitability by both boosting revenues and reducing costs.

Revenue management has been one of the earliest and most impactful applications of AI in hospitality. By leveraging real-time data on booking pace, competitor pricing, local events, and even weather patterns, AI-driven systems can dynamically adjust rates to maximize revenue for hotels. These tools also enable more accurate demand forecasting, allowing operators to allocate inventory across distribution channels more effectively. The ability to optimize revenue management in a scalable and cost-efficient manner has accelerated adoption, with a growing number of hotel companies now embedding AI into their core pricing strategies.

On the operating cost front, AI is driving significant labor and operational efficiencies. Occupancy forecasting powered by AI allows hotels to better align staffing levels with anticipated demand, reducing overstaffing during slow periods and ensuring adequate coverage during peak periods. Routine guest interactions are increasingly being automated through chatbots and AI-enabled concierges, which are able to provide dining recommendations and answers to a variety of guest questions, reducing front desk workload. The adoption of self-check-in kiosks is another cost-saving measure, particularly prevalent in budget and mid-scale hotels where margins are tighter and guests place less emphasis on customer service at check-in.

AI is also transforming hotel operational functions, particularly in energy management and maintenance. Hotels are increasingly leveraging smart systems to optimize HVAC performance, using occupancy forecasts to pre-condition rooms and regulate energy consumption more efficiently. AI-enabled lighting systems adapt to natural light levels and occupancy, further reducing energy waste. In facilities management, AI is facilitating a shift from reactive to predictive maintenance across key systems such as HVAC, elevators, and plumbing. This transition reduces the incidence of emergency repairs, minimizes downtime, and extends the lifespan of these assets. 

Beyond revenue management, staffing, and operational efficiencies, AI has also been deployed in hospitality call centers with measurable impact. On the revenue side, PwC analysis indicates that AI has reduced call abandonment rates by 6 to 8 percent and increased reservation conversion by 25 to 35 percent. From a cost perspective, AI has decreased call volume by 20 to 30 percent and reduced average handle time by 15 to 25 percent, freeing up agent capacity and lowering overall staffing requirements.

While implementation costs and economies of scale have positioned large hotel brands at the forefront of AI adoption, the technology’s applications and adoption are expected to broaden rapidly across the industry, reshaping how hotels drive profitability in an increasingly competitive landscape. 

While AI is reshaping the guest experience and on-site operations, a critical trend reshaping consumer-facing industries is the transition from traditional search engine optimization (SEO) to AI optimization as companies seek new ways to reach customers. Much like SEO transformed digital marketing when it first emerged, AI optimization is poised to become a revolution of its own, with adoption still in its preliminary stages. According to an April 2025 study by the Pew Research Center, 57 percent of U.S. adults interact with AI at least several times per week. As this number grows and consumers become increasingly comfortable with AI tools, the potential influence of AI optimization will expand significantly.

This shift is particularly relevant for the hotel industry. For more than a decade, travel bookings have largely originated from search engines such as Google and online travel agents (OTAs). Over the past few years, however, travelers are increasingly turning to AI platforms to plan trips, frequently asking tools such as ChatGPT for hotel recommendations. As this technology evolves, hotels and OTAs must ensure that their platforms are ready to be scaled for use by agentic models. Unlike traditional SEO, AI search optimization requires hotels to structure information in ways that can be easily processed and surfaced by AI systems. This technical complexity underscores the need for investment in digital infrastructure and marketing technology, enabling hotels to better understand how AI agents curate and recommend content. Those that adapt early will be best positioned to capture demand in a marketplace where AI increasingly serves as the first point of contact between travelers and hotels. 

In Emerging Trends in Real Estate^® 2025, we highlighted the growing performance gap between luxury and economy hotels as an emerging theme within the industry. Over the past year, this bifurcation has not only persisted but accelerated. According to STR data as of August 2025, the luxury hotel segment posted year-to-date RevPAR growth of 5.3 percent compared to the same period in 2024, while the economy segment recorded a decline of 1.8 percent. Notably, luxury and upper-upscale hotels were the only two chain scales to achieve positive RevPAR growth on a year-to-date basis through August 2025. The strength of the luxury segment has been driven primarily by rate increases, with ADR up 5.0 percent year over year, highlighting the strong spending propensity of higher-income households.

This divergence continues to be shaped by the broader macroeconomic environment, as economic uncertainty has disproportionately impacted lower-income households and reduced their ability to spend on discretionary travel. This can be seen through a sharp deterioration in consumer confidence, with the University of Michigan Consumer Sentiment Index declining 21 percent between September 2024 and September 2025. As a result, demand has softened at the lower end of the chain scale spectrum, while higher-income travelers, buoyed by stock market gains and more resilient discretionary spending power, have continued to support performance at the luxury level.

In addition to macroeconomic headwinds, lower chain scale hotels are facing heightened competition from vacation rental platforms such as Airbnb and VRBO, which target price-sensitive travelers. The expansion of this alternative supply has constrained pricing power in the economy and mid-scale segments, ultimately limiting growth prospects for hotels in these categories.

Given the persistence of economic uncertainty and weakened sentiment among U.S. consumers, this bifurcation in hotel performance is likely to endure in the near term. While its trajectory will depend on broader macroeconomic conditions influencing consumer confidence, the current environment suggests that the performance split between luxury and economy hotels will remain a defining trend for the industry in the near future. 

Embedded within the broader bifurcation of hotel performance is the continuing premiumization of travel. Luxury hotels have emerged as the primary growth engine of the hospitality industry, and operators are increasingly seeking ways to capture this demand. At the same time, travelers in the luxury segment are demonstrating heightened expectations for exclusivity, personalization, and differentiated experiences.

In response, hotels have been compelled to evolve their offerings, as a luxury room alone is no longer sufficient to attract and retain high-end guests. Instead, luxury travelers now expect a holistic experience that combines personalization, wellness, and culinary offerings to enhance their stays. This premiumization is also tied to a broader social dynamic, with travel acting as a status symbol. Affluent consumers are placing greater emphasis on travel experiences and are willing to pay a premium for exclusivity. This dynamic has enabled luxury hotels to achieve significant rate growth, with the segment demonstrating both pricing power and resilience even amid broader economic uncertainty.

Looking forward, the premiumization of travel is expected to deepen, and luxury hotels will continue to invest in distinctive offerings. The ability to deliver curated, exclusive experiences will be critical not only to capturing demand at the top end of the market, but also to sustaining growth in an increasingly competitive luxury market.

External forces have thrown a wrench in the hospitality sector’s ability to accurately paint a picture of what’s ahead. The geopolitical environment has experienced volatile changes over the past year, with repercussions across a wide array of industries. The travel sector has been no exception as international visitation to the United States is projected to experience a notable decline in 2025. According to a May 2025 report by the World Travel & Tourism Council, the United States is projected to lose $12.5 billion in international traveler spending in 2025, representing a 6.6 percent decrease from 2024. Similarly, a June 2025 forecast from Tourism Economics projects an 8.2 percent decline in international arrivals to the United States in 2025.  

This downturn is being driven in part by international travelers’ perceptions of the current political environment in the United States, particularly proposed and implemented policies regarding stricter immigration laws and the imposition of tariffs. While the precise impact of this is difficult to quantify, it has clearly emerged as a major headwind to inbound travel. Policy changes have compounded these challenges, as the current administration has enacted tighter requirements for travel visas and Electronic System for Travel Authorization (ESTA) applications, including higher fees and stricter vetting procedures, which have increased the likelihood of denial.

The most pronounced decline of inbound tourism has been from Canada, historically the largest source of inbound travelers to the United States. According to Tourism Economics, Canadian visitation fell 23.7 percent year-to-date through June 2025 compared to the same period in 2024, reflecting heightened tensions between the two countries stemming from tariff disputes and policy strife.

Looking ahead to 2026, however, there are yet some reasons for cautious optimism. As the world becomes more acclimated to the evolving U.S. policy landscape, the initial shock to international demand should begin to ease. In addition, the 2026 FIFA World Cup, which will be hosted in the United States, is poised to reignite inbound travel and has the potential to provide the momentum needed to reverse the downturn of 2025.