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there were widespread expectations that ADR would eventually retreat. It’ s been anything but, especially in the luxury category, where travelers are showing little pushback against higher rates. According to CoStar data, August 2026 YTD luxury ADR in the U. S. stood at $ 416.71, 6.9 % higher than over the same period a year prior. The jump in ADR paired with occupancy gains led to luxury RevPAR of $ 286, an increase of 8.8 % over the same period in 2025.
“ People were worried that post-2022, you were going to see a sharp decrease in rate,” Karver said.“ That hasn’ t happened.”
Instead, rates have generally plateaued or continued to increase at or slightly above inflation, he said, giving owners and operators the confidence and assurance that they can renovate or reposition properties and push ADR without necessarily sacrificing occupancy.
That dynamic is helping fuel transaction activity. Buyers are pursuing a broad range of assets, from stabilized hotels to properties that value-add opportunities for renovation, repositioning and higher rates.
At the same time, the cost of building new hotels has made acquiring existing properties increasingly attractive.
“ The replacement cost of hotels is really high right now,” Karver said. Higher labor and material costs have made new development difficult to pencil, creating an incentive for
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investors to acquire properties that can either operate as-is or be renovated.
That is particularly evident in the limited-service, selectservice and extended-stay segments, where hotel companies have worked to develop products that can be built at more manageable costs. Karver said some new extended-stay products can be developed for roughly $ 125,000 to $ 175,000 per key.
The equation becomes considerably more challenging the higher the chain scale, with luxury projects costing more than $ 1 million per key. Higher bond yields, stubborn inflation and resultant higher interest rates have made it more difficult to underwrite ground-up development.
“ A 5 % interest versus a 6.5 %
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interest on $ 1 million a key is a deal killer,” Karver said.
As a result, some projects are being delayed rather than abandoned. In one example, Karver pointed to a Miami project that has been on hold for several years because financing costs make redevelopment difficult, while the existing property continues to perform.
“ If the property’ s performing, no one’ s complaining,” he said.
WHAT’ S THE ASK? That same dynamic is contributing to a stubborn bid-ask gap in the transaction market. Karver said there is still roughly a 10 % difference between what buyers are willing to pay and what some sellers expect. The fundamental issue is that many owners are not under enough pressure to sell.
Robbie Karver, principal, EY
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“ There’ s still a healthy bidask gap,” he said.“ We have all this dry capital. Our investors want to be in hospitality. They want to be in real estate.”
But financing costs remain an obstacle. Karver said buyers may need interest rates to fall by 100 to 200 basis points to make it easier to offer sellers an additional 5 % to 10 % on pricing. The Federal Reserve lifting the benchmark interest rate 25 basis points earlier this month to a target range of 3.75 % to 4.00 % only makes it harder.
Banks, meanwhile, have largely allowed owners to extend existing loans rather than forcing sales or refinancing at unfavorable terms. That has reduced the urgency for sellers to accept lower valuations.
“ If banks continue to extend.
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Oct / Nov 2026 hotelsmag. com 55 |