The hospitality industry stands at a pivotal crossroads. Insights from across the industry paint a picture of a sector grappling with shifting traveler behavior, technological disruption, and evolving investment dynamics. Two overarching themes have emerged: artificial intelligence is fundamentally reshaping how travelers discover and book accommodations, and luxury alone is no longer a sufficient differentiator — experience-led hospitality is the new competitive battleground. 

AI: The New Gatekeeper of Travel

Perhaps the greatest development in hospitality today is the mainstreaming of AI in the travel planning process. Approximately 40% of travelers now use AI tools to research and plan their trips, and these AI-powered users tend to be wealthier, more sophisticated, and more frequent travelers — a demographic no hotel can afford to ignore. 

This shift carries profound implications for customer acquisition. Online travel agencies already account for roughly 60% of customer acquisition in the U.S. market, and as reliance on traditional search engines like Google diminishes, hotels that lack visibility in AI-powered search results face an escalating challenge in attracting guests. The problem is not merely theoretical. In a notable example a traveler asked ChatGPT to recommend a hotel in Downtown Los Angeles with specific gym amenities. The AI could not provide a confident answer — a stark illustration of the data visibility gap many properties face. 

The remedy, according to industry leaders, lies in proactive content strategies: conducting AI search audits, producing blog posts and short-form video content, and ensuring that property data and amenity information are structured in ways AI tools can readily interpret. Beyond discovery, AI is also poised to revolutionize hotel operations. Accor is already deploying AI concierge services that can complete in one minute tasks that take a human employee 40 minutes. AI-driven dynamic pricing — akin to airline revenue management models — is on the horizon, with rate adjustments happening instantaneously in response to events like concert announcements rather than relying on the traditional, slower approach of general managers and revenue management teams. 

Yet a cautionary note persists: many hoteliers are implementing flashy technology without a fundamental understanding of their customer base. Technology should address core customer needs rather than serve as a superficial differentiator. 

The Experience Economy Takes Center Stage

The second defining theme in the industry is the decisive shift toward experience-led hospitality. Generic luxury hotels — those lacking a distinctive identity or compelling guest experience — will struggle in the years ahead. The winning formula in the upper upscale and luxury segments now combines non-generic experiences, a wellness component with a longevity focus, and an outdoor orientation. Properties in destinations like Joshua Tree and Moab are performing well precisely because they deliver this combination. 

This trend is fueled in part by broader cultural currents. Over 70% of travelers now use social media as a source of inspiration for travel decisions, and a similar proportion read reviews before booking. Tour tourism — travel tied to concerts, sporting events, and cultural celebrations — is a growing segment, with FIFA this year exemplifying the potential of entertainment-driven tourism. Meanwhile, an estimated $90 trillion in generational wealth is in the process of transferring to younger generations, and older travelers are spending more on experiences than on luxury goods. Luxury goods are out, luxury travel is in.

Food and beverage has also emerged as a critical differentiator, particularly for all-inclusive resorts and conversion properties. All-inclusive resorts are growing at four times the rate of the traditional leisure market, but with many properties offering similar amenities — restaurants, kids' clubs, overwater bungalows — the quality of food and beverage becomes the key point of distinction. Poor food and beverage is the primary reason guests decline to book. 

Market Dynamics: Hotels Under Pressure

The U.S. hospitality market is navigating a uniquely challenging period. The United States was the only major country to experience a decline in inbound travel last year, down 5% overall and 25% from Canada specifically. Hotel demand has turned negative — a worrying development because, historically, demand has only declined in connection with significant global events such as the recessions of 1991, 2001, and 2008, or during COVID. This time, there is no such singular catalyst. 

The competitive landscape has also shifted. Short-term rental (“STR”) demand rose while hotel demand softened, with the entire market gain accruing to the STR segment. More than half of consumers now compare STR and hotel options before booking, and rising costs of living are pushing price-sensitive consumers toward STRs. Demand is falling particularly in lower-tier hotels, and the number of travelers staying with friends or family has doubled. 

Despite lower occupancy, average daily rates (“ADRs”) remain higher than pre-pandemic levels, and resorts have outperformed inflation. Industry leaders expressed cautious optimism that if supply growth remains below demand growth, the market could enter a multi-year period with ADR growth approaching 5.5%, yielding significant pricing power and profitability.

Development: Creative Structures for a Constrained Environment

Interest rates and construction costs remain the primary obstacles to new development. Only 16 full-service hotels are currently under development in the United States, reflecting the difficulty of underwriting deals in the current environment. Projects that are getting built tend to be funded by high-net-worth individuals using their own capital, often without brand affiliation or traditional financing. 

In this constrained environment, several development strategies are gaining traction. Conversions dominate the pipeline, with food and beverage revenues in conversion properties accounting for close to 50% of total revenues. Extended stay models continue to show strong momentum, particularly at the lower risk threshold of approximately $15 million or less per project. Adaptive reuse projects, leveraging tax credits and community engagement, represent another avenue for developers seeking creative alternatives to ground-up construction.

Capital stacks are becoming more creative out of necessity. Brands are being more aggressive with deal structuring, offering key money and below-market preferences to get transactions completed. Management companies are increasingly expected to contribute capital, though this financing comes at a premium. 

Investment Outlook: "The Time Is Now"

Despite the headwinds, the investment community expressed a notably bullish outlook. Transaction activity has increased year over year, and several industry leaders described the current moment as an unprecedented opportunity. The cost of debt has improved from 9% to sub-6%, though equity market expectations have not similarly adjusted, with equity premiums remaining at approximately 20%. Mezzanine debt and preferred equity at 10–12% represent growing opportunities. 

Some industry leaders advocated for buying hotels in "boring" secondary markets with manufacturing bases rather than top-10 markets, emphasizing durability and reliable cash flow. Supply-constrained cities like San Francisco and Chicago, where new supply cannot be added quickly, were cited as particularly attractive for value-add strategies. In San Francisco specifically, high single-digit and double-digit RevPAR growth is considered underwritable, with properties trading at extreme discounts to both replacement cost and peak values. 

For urban properties, an innovative strategy is gaining favor: shrinking room sizes while investing in artful design and compelling public spaces. This approach limits construction costs, increases density, and enables premium pricing — a model that mirrors trends in luxury apartment developments in major metropolitan areas. 

The Road Ahead

The hotel industry in 2026 is navigating a complex landscape of technological disruption, shifting consumer preferences, and financial recalibration. The properties and portfolios best positioned for the years ahead will be those that master AI visibility and operational efficiency, deliver distinctive and experience-driven hospitality, and pursue creative development and capital strategies in a constrained environment.