The U.S. hospitality sector continues to face a challenging travel environment this summer, but a shortage of new hotel construction and improving investment activity point to a brighter future for the industry, according to Marcus & Millichap’s June Hospitality Outlook report.
The report highlights an industry facing short-term pressure from cautious consumers while benefiting from a development pipeline that remains far below pre-pandemic levels.
According to Marcus & Millichap, rising vacation-related expenses are causing more people to reconsider their travel plans this summer. Higher energy costs, airfare increases and softer employment conditions are causing many U.S. residents to stay put during the traditional summer travel season. Consumer sentiment has also fallen to historically low levels, creating additional pressure on discretionary spending.
The impact is clear across the travel industry. Marcus & Millichap reports that 70% of consumers have altered their vacation plans because of rising gasoline prices. At the same time, only 45% of consumers plan to stay in paid lodging this summer, the lowest share recorded in six years.
Not all travelers are responding in the same way, though. The report said that higher-income households are continuing to travel at relatively stable levels, while lower-income consumers are cutting back more aggressively.
Not surprisingly, then, Marcus & Millichap found that limited-service hotels are experiencing the greatest slowdown in demand because they are more dependent on budget-conscious travelers. Occupancy in this segment has trended downward since 2019, falling from more than 58% before the pandemic to the low-54% range by late 2025 and remaining at similar levels through May of this year.
Select-service hotels, however, have proven more resilient. Total room nights sold in this segment have remained relatively stable since 2023. As of May 2026, occupancy rates for select-service properties were only 1% below their 2019 peak levels, according to the report.
Performance differences also appear across hotel chain scales. Economy and midscale hotels are seeing softer occupancy levels, while upscale and luxury properties continue to demonstrate stronger performance.
One factor helping the hospitality sector weather these challenges is a lack of new supply. Marcus & Millichap reports that hotel additions remain 34% below 2019 levels as developers grapple with elevated construction costs, financing expenses, labor shortages and higher material prices.
The limited development pipeline is helping prevent oversupply and supporting hotel fundamentals despite softer travel demand.
Investment activity is also showing signs of improvement. The report says that hotel transaction volume increased 19% during the 12-month period ending in March compared with the cyclical low reached in 2024. Deal activity has recovered to levels roughly consistent with those recorded in 2016.
Meanwhile, pricing has remained relatively stable since 2023, averaging about $113,000 per room key, while capitalization rates have hovered near 8.7%.
In some positive news? Marcus & Millichap pointed to relatively modest delinquency rates and added that hotels retain an advantage during inflationary periods because operators can adjust room rates quickly in response to changing economic conditions.
