Hotel Valuations in 2026: Why Debt, PIPs and Segment Mix Matter More Than RevPAR

By David Zaltzman

 

Hotel valuations in 2026 are no longer moving in a single, predictable direction. Asset quality, market, and capital structure are driving a wider spread in pricing than RevPAR trends, especially across the U.S. and Canada.

 

By the end of 2025, the U.S. posted its first non‑recessionary full‑year RevPAR decline on record: occupancy slipped to 62.3%, RevPAR edged down 0.3% to about 100 dollars, while ADR still grew just under 1% to roughly 161 dollars. At the same time, Canada delivered a record year: national occupancy reached 66.1%, ADR rose 3.5% to about 216 Canadian dollars, and RevPAR hit an all‑time high around 143 Canadian dollars, up 4.2% year‑over‑year.

 

Looking ahead, U.S. RevPAR is forecast to grow only about 0.6% in 2026 and 1.4% in 2027, with ADR doing most of the work while occupancy stays in the low 62% range. Canada, by contrast, is projected to post stronger RevPAR and ADR growth through 2026–2027, with national RevPAR expected to climb to roughly 139, 142, and 144 Canadian dollars in 2025, 2026, and 2027 respectively, on stable 65–66% occupancy and steadily rising ADR.

 

The message for valuation: national averages hide as much as they reveal. In the U.S., a flat‑to‑soft RevPAR environment still supports strong pricing for top‑tier assets, while in Canada, record performance and solid forward growth give owners more pricing power, but only in the right submarkets.

 

1. Debt Is Back – But Only For The Right Deal

 

The late‑2024/2025 rate‑cut cycle and improving credit conditions have genuinely loosened hotel financing, but capital today is highly selective rather than indiscriminately plentiful. CMBS, life companies, banks, and debt funds are all quoting again, yet spreads and proceeds vary sharply by flag, market, and sponsor strength, mirroring the valuation bifurcation you see in bids.

 

On the investment side, U.S. hotel transaction volume reached about 24 billion U.S. dollars in 2025, up roughly 17.5% year‑over‑year, signalling a clear return of institutional capital to the space. Mid‑year data showed the first‑half 2025 volume of 9.7 billion U.S. dollars, with the average price per key around 204,000 U.S. dollars, up 3.5% even as the number of deals actually fell.

 

Cap rates have compressed modestly in aggregate, with CBRE’s H1 2025 survey noting slight declines and an expectation that sales volume would continue to trend upward through the year. At the same time, research on U.S. select‑service and midscale hotels points to market cap rates still hovering around the low‑8% range in 2025, wider than pre‑pandemic levels, reflecting lender and buyer caution toward weaker demand segments and secondary locations.

 

For valuation, that means:

• If you control an institutional‑grade asset in a primary or strong secondary market, there is real lender competition and sufficient depth on the buy‑side; the compression in cap rates and available leverage can translate into outsized price support.
• For older, non‑renovated, or tertiary‑market hotels, buyers are underwriting with higher exit cap rates and more conservative leverage, which compounds the negative impact of any earnings softness.

2. Supply Is Still Your Friend, But Only Temporarily

 

Despite headlines about record pipelines, actual new hotel deliveries remain modest relative to demand, which is broadly supportive of valuations for existing, well‑positioned hotels. In the U.S., Lodging Econometrics reports that the pipeline ended 2025 at 6,146 projects and 720,089 rooms, yet only 640 new hotels with 74,079 rooms opened that year, just a 1.3% increase in national supply, with openings forecast to rise only slightly to 708 hotels and 80,034 rooms in 2026 (about 1.4% supply growth) and 824 hotels and 88,095 rooms in 2027 (roughly 1.5%).

 

Canada is in a similar position: by Q4 2025 the pipeline stood at 332 projects and 45,429 rooms, but only 40 hotels with 4,744 rooms opened in 2025, also a 1.3% supply increase, with another 40 hotels (4,944 rooms) projected in 2026 and 49 hotels (5,501 rooms) in 2027. CBRE notes that Canadian room supply grew by less than 1% per year between 2020 and 2024, and is only expected to accelerate to roughly 1.5% growth in 2026 and 2.1% in 2027 as delayed projects finally deliver, still a manageable level of new competition for most existing assets.

 

Layer that supply backdrop on top of relatively modest demand growth, U.S. demand is projected to rebound only about 0.4% in 2026 after a 0.5% decline in 2025, while Canada is forecast to see steady demand gains, and you get a valuation environment where new competition is manageable in most markets but increasingly real on a three‑to‑five‑year view.

 

For owners:

• In markets with minimal new keys and resilient demand (e.g., core Canadian gateways like Vancouver, Toronto, and select U.S. urban nodes), future supply risk is low and valuations should remain well‑supported, particularly through the 2026 FIFA World Cup period.
• In markets already digesting a wave of openings, Sunbelt select‑service corridors in the U.S. or growing secondary metros in Canada, buyers are underwriting more conservative terminal cap rates and softening long‑term RevPAR growth assumptions.

 

3. PIP Liability Is Now A Line Item, Not A Footnote

 

In 2026, buyers are no longer treating Property Improvement Plan requirements as a rounding error; they are baking them directly into their models, often in the range of 5,000 to 15,000 U.S. or Canadian dollars per key for brand-mandated work, before even getting to negotiations. Do you plan deferred renovations or gaps versus current brand standards? Buyers will subtract that cost directly from their offer price, almost one‑for‑one.

 

This is especially true in areas where building new hotels is expensive and competition is rising. Because construction costs are high and projects often face delays, buyers would rather pay a premium for a hotel that is already renovated than buy a cheaper, outdated property and try to fix it up themselves. This is especially the case for mid-to-upscale brands that are fighting hard to stand out from their competitors.

 

Practically, that means:

• Current, well‑documented PIP compliance supports tighter cap rates and higher price‑per‑key; it moves your hotel into the “plug‑and‑play” bucket for institutional buyers.
• If you haven’t clearly defined or accounted for necessary brand upgrades, buyers will penalize you heavily. They will knock more off the price than the actual cost of the work, because they are adding a “risk premium” to cover the hassle, potential construction delays, and uncertainty of managing those renovations themselves.

If you are contemplating a sale in the next 12–24 months, a focused, ROI‑driven PIP strategy, especially around guestrooms, bathrooms, and key public areas, can be one of the highest‑return uses of capital you have.

 

4. Segment Your Revenue Before You Value The Hotel

 

A hotel is not a single business; it is a portfolio of businesses: rooms, F&B, meetings and conventions, spa, parking, ancillary fees, each with distinct margin profiles and risk characteristics. Two properties with identical total revenue can justify very different valuations if one is being dragged down by structurally unprofitable banquet or convention operations while the other leans into high‑margin, transient‑heavy mix.

 

Recent performance and forecasts reinforce this point. PwC and STR highlight that higher‑end chain scales and upper‑upscale hotels are leading ADR and RevPAR growth in 2025–2026, while economy and lower midscale segments face flat or negative ADR in real terms. Group demand also remains uneven. CoStar notes that in 2025, U.S. group demand fell 1.8% but was offset by 4% ADR growth, underscoring the need to understand which segments are actually creating value versus merely filling the building.

 

For valuation, sophisticated buyers are increasingly:

• Underwriting each major revenue stream separately, applying segment‑specific margins and even separate multiples where appropriate.
• Scrutinizing the sustainability of high‑rated corporate and group business versus more volatile leisure and event‑driven peaks (World Cup, major concerts, festivals, etc.).

Owners should adopt the same discipline before going to market or the lender. A strong rooms‑led NOI with disciplined F&B and events can trade at a very different multiple than a similar‑RevPAR asset propped up by low‑margin banquet revenue.

 

5. USA vs. Canada: Same Cycle, Different Valuations Story

 

The U.S. and Canada are moving through the same macro cycle, but the narrative, and therefore valuation read‑through, is different on each side of the border. In the U.S., CoStar and Tourism Economics project modest 2026 performance, about 0.6% RevPAR growth driven largely by ADR, muted demand gains, and supply growth under 1%, with a slight improvement to roughly 1.4% RevPAR growth in 2027.

 

Canada, meanwhile, enters 2026 from a position of strength: national RevPAR hit a record in 2025, driven by resilient domestic travel and ADR growth, and CoStar forecasts Canadian RevPAR to grow about 1.9% in 2026, outpacing the U.S. CBRE’s longer‑term outlook points to national RevPAR rising into the mid‑140s Canadian dollars by 2027, with ADR stepping up to roughly 221 Canadian dollars and occupancy holding in the mid‑60s percentage range.

 

Event‑driven demand adds another context. The 2026 FIFA World Cup is expected to add (it’s still early to validate as of July 2026) around 0.4% to full‑year U.S. RevPAR acts as a material rate‑compression driver for host markets in both countries, particularly Toronto, Vancouver, and selected U.S. cities.

 

For cross‑border investors, this translates into:

• Slightly more growth‑driven upside in Canada over the next three years, but often with thinner liquidity and more localized risk.
• A deeper, more liquid but slower‑growing U.S. market where upside is highly concentrated in specific chain scales, locations, and sponsors rather than the national average.

6. What This Means If You’re Selling, Refinancing, Or Holding

 

If you are considering a sale:

• Lead with the story lenders and buyers are currently rewarding: renovated, brand‑compliant product, demonstrable rate power, and disciplined segment mix in markets with limited near‑term supply.
• Use current transaction benchmarks, like 2025 U.S. average pricing over 200,000 U.S. dollars per key and record Canadian RevPAR levels, to frame your ask, but be prepared to defend it asset‑by‑asset, not by pointing to national averages.

If you are refinancing:

• Run side‑by‑side scenarios for different leverage points and structures, recognizing that a slightly lower LTV with relationship debt can create more value than maximum proceeds at a higher cost of capital.
• Take your lender through a segmented view of NOI and show how your business mix positions the asset relative to peers in a flat‑growth world.

If you are holding long‑term:

• Treat 2026–2027 as a window to clean up PIPs, optimize segmentation, and position for the next real growth leg rather than assume multiple expansion will bail out mediocre earnings.
• In Canada and select U.S. gateways, be deliberate about the World Cup and other event‑driven periods: this is an opportunity to reset rate ceilings and reshape your customer mix, which will flow directly into long‑term valuation if sustained.

Hotel valuations in today’s market are being written asset by asset, not sector by sector. Owners who understand how loans, new competition, brand rules, and revenue streams all affect their hotel will be the ones who find ways to succeed even when the market is slow, rather than letting it hurt their bottom line.