It’s 2025, but the effects of the COVID pandemic are still hitting the Minneapolis-St. Paul hospitality sector.
How so? In its 2025 Minneapolis-St. Paul Metro Area Hospitality Investment Forecast, Marcus & Millichap reported that fewer than 250 hotel rooms were under construction as of the start of 2025. That is the lowest hotel development pipeline since 2010.
And while Marcus & Millichap reported that hotel occupancy rates in the Twin Cities area are projected to rise for the sixth consecutive year, these rates will still rank below pre-pandemic levels.
According to the report, occupancy throughout the metro area is expected to hit 59.4% as of the end of this year. While that is an improvement, it’s not as strong as the levels hotel operators saw before the COVID-19 pandemic hit in 2020.
The report, though, is largely a positive one, as the local hotel industry, despite challenges, is in the middle of what Marcus & Millichap calls a recovery period.
“Despite below pre-pandemic occupancy levels, the Twin Cities hospitality sector is showing signs of a steady, demand-driven rebound supported by limited new supply and record ADR,” said Todd Lindblom, first vice president and regional manager with Marcus & Millichap.
Marcus & Millichap also reported that the average daily rate for hotel rooms in the metropolitan area is expected to hit a record-high of $136.18 in 2025. This higher ADR will be fueled by upper-scale hotels that are expected to boast a higher occupancy rate of 62.3%.
RevPAR, or revenue per available room, is expected to increase at a more moderate pace, though. Marcus & Millichap said that average RevPAR is expected to increase to $80.92 in the Minneapolis-St. Paul market this year. If this happens, that would be the highest this figure has been since 2019, before the pandemic.
Downtown Minneapolis is expected to lead the area’s RevPAR gains.
Marcus & Millichap said, too, that investment sentiment remains optimistic in this sector, with average room prices in the Twin Cities area climbing 20% on a year-over-year basis. In addition, a cap rate of 10.4% will position the Twin Cities metropolitan area as an attractive market to investors seeking higher yields, the company’s report said.
“This year’s constrained development pipeline, coupled with improving fundamentals and new urban projects like Upper Harbor Terminal, positions the Twin Cities market for cautious yet promising growth,” said Lindblom.
