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Will Luxury Hotels Gain Investor Momentum in 2025?

This luxurious hotel lobby features an elegant design with a grand chandelier, marble floors, and exquisite floral arrangements. The warm lighting, modern architecture.

The new year brings differing forecasts for two hotel transaction markets: Luxury properties are in high demand, while the mid-sized market is up against a challenging climate.

Rising costs and economic pressures from increased operating costs and years of rising interest rates have made investors sour on the mid-level market. Hospitality leaders are up against unique financial challenges in 2025.

Read on for strategies to navigate mid-level market challenges and capitalize on the thriving luxury segment.

Luxury segment thrives

The world’s wealthiest are providing a travel demand that high-end hotel investors wish to supply.

Real Estate Investment Trusts (REITs) have grown in popularity over the past three decades. Recent data from Nareit reveals roughly 940 REITs are operating worldwide with a combined value of approximately $2 trillion.

REITs are more or less an investment tool that pools together money from many large and small investors, similar to a mutual fund. REITs and other specialized investment firms are highly attracted to the luxury hotel market. Skift reports that luxury markets like Houston, Texas, New York, and Chicago may expect wealthy corporate business travelers to continue.

Great news for the luxury hotel managers. Those of you providing guest experience to the middle-income traveler are still crossing their fingers for an economic rebound.

Mid-sized hoteliers may struggle

When your target demographic is a middle-income family, and they’re struggling financially, so are you.

Full-service, mid-sized hotels (valued between $50 million and $250 million) are still faced with hardships dating back to the pandemic.

Increased interest rates and construction costs (which have increased by 20%-40%) in recent years are also met by higher labor and insurance costs. Investors aren’t too keen on putting their money into a market with less return on investment.

So what can you do?

Seek markets where travel will increase

Washington, D.C., stands out this year. Due to an incoming administration, more political and corporate events and relocations are likely.  D.C.’s hotel market could thrive while other markets wane. Investors and travelers may seek D.C. as a strong hotel market.

The Guest Experience Management Checklist:

  • Monitor the trends: Keep a finger on the pulse of your market’s performance metrics. The best way to identify a good investment property is to consult the numbers.
  • Assess your investments: Is the juice still worth the squeeze? It’s time to evaluate whether mid-sized properties are worth the financial and operational challenges. Explore inexpensive guest experiences to attract budget-conscious travelers.
  • Optimize Operational Efficiency: Implement measures to control rising costs, such as adopting new technologies or renegotiating supplier contracts.

If there’s one thing hospital leaders are great at is adapting, pivoting, and rising to the challenge of a dynamic industry. The past five years have solidified that. Never lose sight of what’s more important: The best and most unique experience for your guests.