A sharp slowdown in hotel construction is helping sustain industry fundamentals despite signs of softer demand in lower-priced lodging segments, according to a recent market update from Marcus & Millichap.
New hotel supply additions during the past 12 months were down 34% compared with the same period in 2019, a trend that continues to support occupancy levels and pricing even as economic pressures weigh on some travelers.
"This construction slowdown reflects the elevated cost of construction, financing, materials and labor," said John Chang, chief intelligence and analytics officer at Marcus & Millichap.
The limited pipeline has helped the industry maintain relatively stable demand metrics. As of May 2026, the number of occupied hotel rooms nationwide was down just 1% from the peak reached in 2019, while total room nights sold have remained largely stable since 2023.
At the same time, performance is diverging sharply across hotel segments, with the industry's challenges concentrated primarily among lower-priced properties. Citing survey data, Chang noted that households earning less than $100,000 annually have pulled back on travel plans more significantly than higher-income consumers.
Limited-service hotel occupancy peaked in 2019 at slightly above 58%, then eased in the years following the pandemic and has recently settled in the low-54% range. Demand measured by room nights sold has also trended downward within the segment.
By contrast, higher-end properties have shown greater resilience.
"Demand for select-service hotels has remained relatively stable since 2022 while full-service hotel demand has been rising," Chang said.
Economy hotels have experienced the most substantial softening in the post-pandemic period, while luxury, upper-upscale and upscale hotels have demonstrated the strongest durability. The bifurcation mirrors trends seen in other consumer sectors, where higher-income households have continued to spend despite broader economic uncertainty, Chang said.
For investors, the combination of resilient demand and limited new supply is helping support market activity. Transaction volume during the 12 months ending in the first quarter increased by approximately 19% from the cyclical trough reached in 2024 and has returned to levels roughly comparable to those in 2016, according to Marcus & Millichap data. At the same time, pricing has remained relatively stable since 2023, averaging approximately $113,000 per key, while cap rates have held near 8.7%.
Although Chang said the current summer travel season is unlikely to deliver a blockbuster performance, he characterized overall industry conditions as steady. Hotels may also retain an advantage should inflation remain elevated. Because room rates can be adjusted daily, the sector offers owners greater pricing flexibility than many other commercial property types.
Looking beyond near-term economic headwinds, Chang said the industry's restrained development pipeline could continue to support operating performance.
"Over the longer term, looking past short-term headwinds, demand drivers could strengthen when the economy gains momentum," he said. "At the same time, new supply risk remains modest. That will reinforce long-term hospitality performance."
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