Hotel investors are taking a cautious stance as they confront rising operational costs and persistent policy uncertainty, combined with high interest rates that have not diminished as expected.
At Bisnow’s South Florida and Caribbean Hotel and Hospitality event on Tuesday, industry leaders conveyed a shift in focus from seeking new deals to ensuring their current properties are resilient in light of these challenges.
Daniel Azevedo, Managing Director at Driftwood Capital, shared insights on the current climate saying, “Our view on the very environment is being a moment of caution, meaning there’s a lot of uncertainty at the macro level.”
He noted that such uncertainty impacts perceptions of the economy, which ultimately affects hotel demand across their operating portfolio.
According to a CoStar study referenced by Hotel Investment Today, U.S. transaction volumes for hotel assets dropped 22% in the first half of 2025 when compared to the previous year.
In the second quarter, hotel transactions reached $3.7 billion, a notable decrease from over $6 billion in the second quarter of 2024.
Glenn Alba, co-founder and managing partner of TMGOC Ventures, pointed out that there is still no definitive signal for investors to consider diving back into the market.
He remarked, “I think the challenge has been that we continually sit in these panels and say, ‘Now is almost about to be the good time to invest again.’ That all-clear signal hasn’t hit.”
Additionally, a recent Colliers report indicated that hotel values fell by 4% year-over-year at the start of 2025, making hotels the only significant real estate asset class to see a decline.
While some investors are still on the lookout for opportunities, the panelists signaled that the market outlook remains cloudy as the industry braces for a potential downturn as the year progresses.
Alba further explained, “I think the challenge was the seller mindset finally came down on what their values should be [and was] getting closer to what buyers are looking for.”
However, this trend may not bode well for current property owners, as they may see a decrease in the value of their investments.
The fluctuating tariffs and rhetoric from President Donald Trump, including comments about possibly annexing Canada, have played a role in affecting tourism.
Despite a significant dip in consumer confidence reaching a near five-year low in April, the hotel operators on the panel conveyed that the repercussions on the industry have been less severe than anticipated.
Azevedo noted, “We manage 85 hotels across the entire country. We’re seeing softening across, but it’s 5%, 8%, 6%.”
His observations indicate that while consumer sentiment is low, the direct impacts on hotel operations have not been drastically detrimental as feared.
However, rising operating costs remain a pressing issue for hotel owners, according to panel discussions.
Labor costs, insurance premiums, and franchise-related fees are outpacing revenue growth, while maintenance and upgrades continue to rise significantly.
A report by CBRE highlighted that hotel labor expenses increased by 4.8% in 2024, maintenance costs surged by 5%, technology expenses rose by 5.1%, and insurance premiums skyrocketed by 17.4%.
In contrast, total hotel revenues only saw an increase of 2.3% during the same period.
Azevedo emphasized the need for efficient management of operating costs regardless of revenue fluctuations, saying, “Regardless of what happens to the top line, your operating costs will continue to increase if you don’t manage that well.”
With cautious sentiments prevailing, investors are now prioritizing selective markets and creating buffers for potential risks.
As Driftwood Capital aims to enhance the appeal of its hotels, Azevedo stated that the focus is on establishing differentiating factors that can help capture a larger share of a shrinking market.
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