Mark Woodworth, Principal of Woodworth Core Group and Board Member of Hotel Investor Apps, Inc., makers of HIA ERP & Accounting software, brings over 40 years of hospitality industry advisory experience, including at CBRE Hotels and PKF Consulting, to inform his perspective on the current economic outlook for the U.S. lodging industry.
As hoteliers prepare budgets for 2027, here are some questions to ask yourself: How do you feel about today’s economy: good, okay, or bad? Will the economy be better, the same, or worse in 2027? Will 2026 hotel performance end up better than, the same as, or worse than you expected a year ago, and will 2027 be up, flat, or down relative to today? My opinion, based on over 40 years of hospitality industry advisory experience, is that the mood is worse than the data. Today’s economy is OK, next year will be better, and hotels will outperform the mood.
Americans feel worse about the economy than the numbers justify. The Conference Board’s Leading Economic Index (LEI), a ten-part gauge that has historically anticipated turning points in the business cycle by about seven months, provides meaningful insight into where the domestic economy has been and where it is heading. The index remains well below its 2022 peak. Its six-month growth rate, which spent long stretches since 2022 in recession-signal territory without a recession following, had climbed back to roughly zero as of July. Meanwhile, the Conference Board’s Coincident Economic Index (CEI) has been climbing relative to the LEI, a trend last seen during the recovery periods following the 2001 and 2008-2009 recessions. I see this as a sign that the economy is sturdier than the LEI alone suggests.
Consumer expectations for business conditions have been the main drag on the index, subtracting 1.26 points over the six months ending in July. Consumer confidence, at roughly 90 in August, has drifted down since 2021. By contrast, financial components such as the credit index, the stock market, and the yield spread all contributed positively.
The July consensus forecast is unremarkable in a good way. Real GDP grew 2.2% in 2025 and is projected at 2.1% for 2026 and 2.2% for 2027. Inflation is expected to fall from 3.58% at year-end 2025 to 2.61% at year-end 2026 and 2.30% at year-end 2027. Unemployment was 4.10% in July, with forecasts of 4.33% and 4.26% for year-end 2026 and 2027.
Markets have shrugged off the year’s shocks. The Dow closed at 51,462 on September 16, up 2,211 points (4.5%) from January 5, having recovered from the dips tied to April 2025’s “Liberation Day” tariffs and weathered the start of the Iran war this year.
That said, there are some longer-term concerns:
Rate cuts have fallen off the table. The quarter-point rate hike on September 16 was not a surprise, and the consensus calls for at least one more 25 bp lift before the end of 2026. The 10-year Treasury yield hovers around 5.0% near the end of Q3 2026 – this compares to the 2.73% average over the past decade. Moody’s AAA corporate bond yield, at roughly 5.9%, is below its 6.4% long-run average.
Research from my friend and former colleague Jack Corgel, President of Cordial Hotel Property Research, illustrates that there are four drivers of cap rate change:
Jack’s cap rate forecasting model, built on the Gordon Growth Model, indicates that hotel cap rates are a function of the risk-free rate plus a risk premium, minus income growth. On average, income growth contributes 36% of the model’s predictive power, the risk-free rate 31%, and the risk premium 27%. Other variables, such as the debt-to-GDP ratio, each add less than 5%.
According to CoStar, hotel cap rates have averaged 9.4% in 2026, about 30 basis points above the 9.1% long-term average. Since early 2022, though, the 10-year Treasury yield has risen roughly 250 basis points while cap rates have risen only about 100. The spread over the 10-year has narrowed to 4.92%, well below its long-run average of 569 basis points.
Lenders are showing more appetite. Bank survey data through August show stronger demand for commercial loans, standards for commercial and industrial loans hovering near neutral, and, notably, standards for construction and land development loans turning slightly easier on net.
Given the above, hotel cap rates will likely trend slightly up over the next year or two.
Both supply growth and demand growth have trended down for decades. Net domestic supply change has recently been running below 1% a year. The expansion in short-term rentals may explain part of the demand story. U.S. STR listings grew from 1.16 million in 2019 to 1.71 million in 2025, with 1.78 million forecast for 2027 according to AirDNA. Over the same period, their data show average nightly price rising from $193 to $256 and occupancy inching from 56.2% to 57.1%.
Hotel demand slipped year over year through much of 2025 (the second through fourth quarters), then turned positive in the first two quarters of 2026 across nearly every chain scale and location type. Group business is mixed. In a survey of 210 destination marketing organizations, first-half 2026 leads were up 10% and bookings up 3%, but booked room nights fell 4%, driven by convention center events. Technology and sports events continued to grow.
Affluent travelers are a big part of the story. Households earning $200,000 or more make up 11% of households but account for 36% of leisure lodging spending, up from 25% in 2018, according to Tourism Economics. Adding the $150,000 to $199,000 bracket brings the combined share of leisure lodging spending to 51%.
The cost side has improved too. A year ago, hotel departmental expenses were rising far faster than revenues: 5.5% versus 3.4% in May 2025. Beginning in March 2026, revenue growth overtook expense growth. In May 2026, revenues were up 3.8% against expenses up 1.7%.
Late-2025 forecasts for 2026 were subdued, averaging just 1.0% RevPAR growth (CBRE, STR, PwC, and LARC). Updated forecasts now average 3.6% RevPAR growth for 2026, driven by 0.7% occupancy growth and 2.8% ADR growth. Year-to-date through August, CoStar shows RevPAR up 5.2%, with occupancy up 2.0% and ADR up 3.2%.
Mark Skousen at Chapman University recently authored an interesting piece in The Wall Street Journal. He notes that the domestic economic picture is changing, as shown by the macro statistic that measures spending at all stages of production. GDP does not directly address what is happening in the supply chain, which is a leading indicator. A broader statistic, known as gross output, or GO, measures spending at all stages of production. Skousen notes that “business spending in the supply chain is much bigger and more volatile than final consumption and does a better job of measuring the ups and downs of the business cycle.” Second-quarter 2026 GO growth was substantial, and GO is now growing faster than GDP, which is significant. This may help to explain why the lodging industry has outperformed most expectations thus far in 2026. GO growth is expected to be even stronger in 2027.
That being said, industry forecasters expect a slower pace for U.S. hotels in 2027. The average estimate calls for 0.6% occupancy growth, 1.4% ADR growth, and 2.0% RevPAR growth. Many unknowns remain today that will become clearer in the months ahead; chief among them are the results of the November elections. We will hopefully have more clarity on the outcome of the war in Iran and its impact on energy prices as well. Uncertainty should dissipate as a result.
My guess is that 2027 will likely see something greater than a 2.0% increase in U.S. RevPAR. Something in the 3.0% to 3.5% range feels a little better.
Some closing thoughts:
Sources cited include the Conference Board, BEA, WSJ Consensus Forecast, CoStar, AirDNA, FRED, Policyuncertainty.com, the Wall Street Journal, and Jack Corgel of Cornell University.
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